Correlation Between Small Cap and Chicken Soup

Can any of the company-specific risk be diversified away by investing in both Small Cap and Chicken Soup 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 Chicken Soup 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 Chicken Soup for, you can compare the effects of market volatilities on Small Cap and Chicken Soup 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 Chicken Soup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Chicken Soup.

Diversification Opportunities for Small Cap and Chicken Soup

-0.29

Correlation Coefficient

Small Cap  Chicken Soup

Very good diversification

The 3 months correlation between Small and Chicken is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Chicken Soup for in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chicken Soup for 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 Chicken Soup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chicken Soup for has no effect on the direction of Small Cap i.e., Small Cap and Chicken Soup go up and down completely randomly.

Pair Corralation between Small Cap and Chicken Soup

Assuming the 90 days horizon Small Cap Core is expected to under-perform the Chicken Soup. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Core is 5.14 times less risky than Chicken Soup. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Chicken Soup for is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.62  in Chicken Soup for on January 25, 2024 and sell it today you would earn a total of  0.02  from holding Chicken Soup for or generate 3.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Small Cap Core  vs.  Chicken Soup for

Small Cap Core

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Chicken Soup for

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chicken Soup for has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Chicken Soup is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Small Cap and Chicken Soup

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

The idea behind Small Cap Core and Chicken Soup for 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.