Correlation Between Small Cap and Jennison Natural

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

By analyzing existing cross correlation between Small Cap Equity and Jennison Natural Resources, you can compare the effects of market volatilities on Small Cap and Jennison Natural 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 Jennison Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Jennison Natural.

Diversification Opportunities for Small Cap and Jennison Natural

0.58

Correlation Coefficient

Small Cap  Jennison Natural

Very weak diversification

The 3 months correlation between Small and Jennison is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Jennison Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jennison Natural Res 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 Equity are associated (or correlated) with Jennison Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jennison Natural Res has no effect on the direction of Small Cap i.e., Small Cap and Jennison Natural go up and down completely randomly.

Pair Corralation between Small Cap and Jennison Natural

Assuming the 90 days horizon Small Cap Equity is expected to generate 1.11 times more return on investment than Jennison Natural. However, Small Cap is 1.11 times more volatile than Jennison Natural Resources. It trades about 0.18 of its potential returns per unit of risk. Jennison Natural Resources is currently generating about 0.11 per unit of risk. If you would invest  1,785  in Small Cap Equity on September 5, 2024 and sell it today you would earn a total of  250.00  from holding Small Cap Equity or generate 14.01% return on investment over 90 days.

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

Small Cap Equity  vs.  Jennison Natural Resources

Small Cap Equity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity 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 Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Jennison Natural Res

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jennison Natural Resources are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Jennison Natural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Small Cap and Jennison Natural

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

The idea behind Small Cap Equity and Jennison Natural Resources 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.