Correlation Between Us Small and Smallcap Value

Can any of the company-specific risk be diversified away by investing in both Us Small and Smallcap Value 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 Us Small and Smallcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Us Small Cap and Smallcap Value Fund, you can compare the effects of market volatilities on Us Small and Smallcap Value 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 Us Small with a short position of Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Us Small and Smallcap Value.

Diversification Opportunities for Us Small and Smallcap Value

0.99

Correlation Coefficient

Us Small  Smallcap Value

No risk reduction

The 3 months correlation between DFSVX and Smallcap is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Us Small Cap and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value and Us Small 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 Us Small Cap are associated (or correlated) with Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of Us Small i.e., Us Small and Smallcap Value go up and down completely randomly.

Pair Corralation between Us Small and Smallcap Value

Assuming the 90 days horizon Us Small Cap is expected to generate 0.99 times more return on investment than Smallcap Value. However, Us Small Cap is 1.01 times less risky than Smallcap Value. It trades about -0.04 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about -0.07 per unit of risk. If you would invest  4,597  in Us Small Cap on February 5, 2024 and sell it today you would lose (48.00) from holding Us Small Cap or give up 1.04% of portfolio value over 90 days.

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

Us Small Cap  vs.  Smallcap Value Fund

Us Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Us Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Smallcap Value

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Us Small and Smallcap Value

The main advantage of trading using opposite Us Small and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Us Small position performs unexpectedly, Smallcap Value 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 Smallcap Value will offset losses from the drop in Smallcap Value's long position.

The idea behind Us Small Cap and Smallcap Value Fund 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.