Correlation Between Brandes Core and Brandes Small

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

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

Diversification Opportunities for Brandes Core and Brandes Small

-0.61

Correlation Coefficient

Brandes Core  Brandes Small

Excellent diversification

The 3 months correlation between Brandes and Brandes is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Brandes E Plus and Brandes Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brandes Small Cap and Brandes Core 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 Brandes E Plus are associated (or correlated) with Brandes Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brandes Small Cap has no effect on the direction of Brandes Core i.e., Brandes Core and Brandes Small go up and down completely randomly.

Pair Corralation between Brandes Core and Brandes Small

Assuming the 90 days horizon Brandes E Plus is expected to under-perform the Brandes Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Brandes E Plus is 4.27 times less risky than Brandes Small. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Brandes Small Cap is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,575  in Brandes Small Cap on September 5, 2024 and sell it today you would earn a total of  234.00  from holding Brandes Small Cap or generate 14.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Brandes E Plus  vs.  Brandes Small Cap

Brandes E Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brandes E Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Brandes Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brandes Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brandes Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Brandes Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brandes Core and Brandes Small

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

The idea behind Brandes E Plus and Brandes Small Cap 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.