Correlation Between Litman Gregory and Century Small

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

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

Diversification Opportunities for Litman Gregory and Century Small

-0.55

Correlation Coefficient

Litman Gregory  Century Small

Excellent diversification

The 3 months correlation between Litman and Century is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Litman Gregory Masters and Century Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Small Cap and Litman Gregory 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 Litman Gregory Masters are associated (or correlated) with Century Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Small Cap has no effect on the direction of Litman Gregory i.e., Litman Gregory and Century Small go up and down completely randomly.

Pair Corralation between Litman Gregory and Century Small

Assuming the 90 days horizon Litman Gregory Masters is expected to under-perform the Century Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Litman Gregory Masters is 1.42 times less risky than Century Small. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Century Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,823  in Century Small Cap on September 12, 2024 and sell it today you would earn a total of  451.00  from holding Century Small Cap or generate 11.8% return on investment over 90 days.

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

Litman Gregory Masters  vs.  Century Small Cap

Litman Gregory Masters

Risk-Adjusted Performance

0 of 100

Very Weak

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

Century Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Century Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Century Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Litman Gregory and Century Small

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

The idea behind Litman Gregory Masters and Century 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.

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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.