Correlation Between Zacks Dividend and Zacks Small-cap

Can any of the company-specific risk be diversified away by investing in both Zacks Dividend and Zacks Small-cap at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Zacks Dividend and Zacks Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zacks Dividend Fund and Zacks Small Cap E, you can compare the effects of market volatilities on Zacks Dividend and Zacks Small-cap and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Zacks Dividend with a short position of Zacks Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zacks Dividend and Zacks Small-cap.

Diversification Opportunities for Zacks Dividend and Zacks Small-cap

0.29

Correlation Coefficient

Zacks Dividend  Zacks Small-cap

Modest diversification

The 3 months correlation between Zacks and Zacks is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Zacks Dividend Fund and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small Cap and Zacks Dividend is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Zacks Dividend Fund are associated (or correlated) with Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Zacks Dividend i.e., Zacks Dividend and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Zacks Dividend and Zacks Small-cap

Assuming the 90 days horizon Zacks Dividend Fund is expected to generate 0.61 times more return on investment than Zacks Small-cap. However, Zacks Dividend Fund is 1.63 times less risky than Zacks Small-cap. It trades about 0.07 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about -0.08 per unit of risk. If you would invest  2,494  in Zacks Dividend Fund on December 28, 2024 and sell it today you would earn a total of  77.00  from holding Zacks Dividend Fund or generate 3.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Zacks Dividend Fund  vs.  Zacks Small Cap E

Zacks Dividend

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zacks Dividend Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Zacks Dividend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zacks Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zacks Small Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Zacks Small-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Zacks Dividend and Zacks Small-cap

The main advantage of trading using opposite Zacks Dividend and Zacks Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zacks Dividend position performs unexpectedly, Zacks Small-cap can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zacks Small-cap will offset losses from the drop in Zacks Small-cap's long position.

The idea behind Zacks Dividend Fund and Zacks Small Cap E pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.