Correlation Between Century Small and Congress Large

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

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

Diversification Opportunities for Century Small and Congress Large

0.92

Correlation Coefficient

Century Small  Congress Large

Almost no diversification

The 3 months correlation between Century and Congress is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Century Small Cap and Congress Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Congress Large Cap and Century Small 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 Century Small Cap are associated (or correlated) with Congress Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Congress Large Cap has no effect on the direction of Century Small i.e., Century Small and Congress Large go up and down completely randomly.

Pair Corralation between Century Small and Congress Large

Assuming the 90 days horizon Century Small Cap is expected to generate 1.44 times more return on investment than Congress Large. However, Century Small is 1.44 times more volatile than Congress Large Cap. It trades about 0.15 of its potential returns per unit of risk. Congress Large Cap is currently generating about 0.18 per unit of risk. If you would invest  4,483  in Century Small Cap on September 13, 2024 and sell it today you would earn a total of  483.00  from holding Century Small Cap or generate 10.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Century Small Cap  vs.  Congress Large Cap

Century Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Century Small Cap are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Century Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Congress Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Congress Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Congress Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Century Small and Congress Large

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

The idea behind Century Small Cap and Congress Large 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.