Correlation Between Boston Partners and Small-company Stock

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

By analyzing existing cross correlation between Boston Partners All Cap and Small Company Stock Fund, you can compare the effects of market volatilities on Boston Partners and Small-company Stock 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 Boston Partners with a short position of Small-company Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Partners and Small-company Stock.

Diversification Opportunities for Boston Partners and Small-company Stock

0.95

Correlation Coefficient

Boston Partners  Small-company Stock

Almost no diversification

The 3 months correlation between Boston and Small-company is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Boston Partners All Cap and Small Company Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small-company Stock and Boston Partners 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 Boston Partners All Cap are associated (or correlated) with Small-company Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small-company Stock has no effect on the direction of Boston Partners i.e., Boston Partners and Small-company Stock go up and down completely randomly.

Pair Corralation between Boston Partners and Small-company Stock

Assuming the 90 days horizon Boston Partners is expected to generate 2.57 times less return on investment than Small-company Stock. But when comparing it to its historical volatility, Boston Partners All Cap is 1.58 times less risky than Small-company Stock. It trades about 0.11 of its potential returns per unit of risk. Small Company Stock Fund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,599  in Small Company Stock Fund on August 31, 2024 and sell it today you would earn a total of  369.00  from holding Small Company Stock Fund or generate 14.2% return on investment over 90 days.

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

Boston Partners All Cap  vs.  Small Company Stock Fund

Boston Partners All

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Partners All Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Boston Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small-company Stock

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Company Stock Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small-company Stock showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Partners and Small-company Stock

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

The idea behind Boston Partners All Cap and Small Company Stock Fund 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.