Correlation Between Balanced Fund and Small-mid Cap

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

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

Diversification Opportunities for Balanced Fund and Small-mid Cap

0.54

Correlation Coefficient

Balanced Fund  Small-mid Cap

Very weak diversification

The 3 months correlation between Balanced and Small-mid is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Retail and Small Mid Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Mid Cap and Balanced Fund 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 Balanced Fund Retail are associated (or correlated) with Small-mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Mid Cap has no effect on the direction of Balanced Fund i.e., Balanced Fund and Small-mid Cap go up and down completely randomly.

Pair Corralation between Balanced Fund and Small-mid Cap

Assuming the 90 days horizon Balanced Fund Retail is expected to generate 0.56 times more return on investment than Small-mid Cap. However, Balanced Fund Retail is 1.77 times less risky than Small-mid Cap. It trades about 0.18 of its potential returns per unit of risk. Small Mid Cap Equity is currently generating about -0.2 per unit of risk. If you would invest  1,364  in Balanced Fund Retail on March 21, 2024 and sell it today you would earn a total of  24.00  from holding Balanced Fund Retail or generate 1.76% return on investment over 90 days.

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

Balanced Fund Retail  vs.  Small Mid Cap Equity

Balanced Fund Retail

Risk-Adjusted Performance

6 of 100

Modest

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

Small Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Mid Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small-mid 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 Balanced Fund and Small-mid Cap

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

The idea behind Balanced Fund Retail and Small Mid Cap Equity 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..