Correlation Between Powered Brands and Small Cap

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

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

Diversification Opportunities for Powered Brands and Small Cap

-0.51

Correlation Coefficient

Powered Brands  Small Cap

Excellent diversification

The 3 months correlation between Powered and Small is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Powered Brands and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Powered Brands 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 Powered Brands are associated (or correlated) with 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 Small Cap Core has no effect on the direction of Powered Brands i.e., Powered Brands and Small Cap go up and down completely randomly.

Pair Corralation between Powered Brands and Small Cap

Assuming the 90 days horizon Powered Brands is expected to generate 47.84 times more return on investment than Small Cap. However, Powered Brands is 47.84 times more volatile than Small Cap Core. It trades about 0.11 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.03 per unit of risk. If you would invest  21.00  in Powered Brands on January 19, 2024 and sell it today you would lose (21.00) from holding Powered Brands or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	26.46%
Values	Daily Returns

Powered Brands  vs.  Small Cap Core

Powered Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powered Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Powered Brands is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, 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 Powered Brands and Small Cap

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

The idea behind Powered Brands and Small Cap Core 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 Transaction History module to view history of all your transactions and understand their impact on performance.