Correlation Between Small Cap and Ampleforth

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

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

Diversification Opportunities for Small Cap and Ampleforth

-0.38

Correlation Coefficient

Small Cap  Ampleforth

Very good diversification

The 3 months correlation between Small and Ampleforth is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Ampleforth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ampleforth 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 Core are associated (or correlated) with Ampleforth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ampleforth has no effect on the direction of Small Cap i.e., Small Cap and Ampleforth go up and down completely randomly.

Pair Corralation between Small Cap and Ampleforth

Assuming the 90 days horizon Small Cap Core is expected to generate 0.16 times more return on investment than Ampleforth. However, Small Cap Core is 6.39 times less risky than Ampleforth. It trades about -0.16 of its potential returns per unit of risk. Ampleforth is currently generating about -0.14 per unit of risk. If you would invest  1,309  in Small Cap Core on March 22, 2024 and sell it today you would lose (46.00) from holding Small Cap Core or give up 3.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Small Cap Core  vs.  Ampleforth

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.

Ampleforth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ampleforth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for Ampleforth shareholders.

Pair Trading with Small Cap and Ampleforth

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

The idea behind Small Cap Core and Ampleforth 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.