Correlation Between Small Cap and American Mutual

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

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

Diversification Opportunities for Small Cap and American Mutual

0.9

Correlation Coefficient

Small Cap  American Mutual

Almost no diversification

The 3 months correlation between Small and American is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and American Mutual Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Mutual and Small Cap 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 Small Cap Value are associated (or correlated) with American Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Mutual has no effect on the direction of Small Cap i.e., Small Cap and American Mutual go up and down completely randomly.

Pair Corralation between Small Cap and American Mutual

Assuming the 90 days horizon Small Cap is expected to generate 1.38 times less return on investment than American Mutual. In addition to that, Small Cap is 1.59 times more volatile than American Mutual Fund. It trades about 0.14 of its total potential returns per unit of risk. American Mutual Fund is currently generating about 0.3 per unit of volatility. If you would invest  5,271  in American Mutual Fund on February 23, 2024 and sell it today you would earn a total of  164.00  from holding American Mutual Fund or generate 3.11% return on investment over 90 days.

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

Small Cap Value  vs.  American Mutual Fund

Small Cap Value

Risk-Adjusted Performance

6 of 100

Modest

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

American Mutual

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Mutual Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and American Mutual

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

The idea behind Small Cap Value and American Mutual 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.