Correlation Between Small Company and Tributary Small/mid

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

By analyzing existing cross correlation between Small Pany Fund and Tributary Smallmid Cap, you can compare the effects of market volatilities on Small Company and Tributary Small/mid 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 Company with a short position of Tributary Small/mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Tributary Small/mid.

Diversification Opportunities for Small Company and Tributary Small/mid

0.97

Correlation Coefficient

Small Company  Tributary Small/mid

Almost no diversification

The 3 months correlation between Small and Tributary is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Fund and Tributary Smallmid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tributary Smallmid Cap and Small Company 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 Pany Fund are associated (or correlated) with Tributary Small/mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tributary Smallmid Cap has no effect on the direction of Small Company i.e., Small Company and Tributary Small/mid go up and down completely randomly.

Pair Corralation between Small Company and Tributary Small/mid

Assuming the 90 days horizon Small Pany Fund is expected to generate 1.23 times more return on investment than Tributary Small/mid. However, Small Company is 1.23 times more volatile than Tributary Smallmid Cap. It trades about 0.12 of its potential returns per unit of risk. Tributary Smallmid Cap is currently generating about 0.14 per unit of risk. If you would invest  3,219  in Small Pany Fund on September 4, 2024 and sell it today you would earn a total of  297.00  from holding Small Pany Fund or generate 9.23% return on investment over 90 days.

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

Small Pany Fund  vs.  Tributary Smallmid Cap

Small Pany Fund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Small Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tributary Smallmid Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tributary Smallmid 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, Tributary Small/mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small Company and Tributary Small/mid

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

The idea behind Small Pany Fund and Tributary Smallmid 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.