Correlation Between Smallcap Growth and Bond Fund

Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Bond Fund 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 Smallcap Growth and Bond Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smallcap Growth Fund and Bond Fund Class, you can compare the effects of market volatilities on Smallcap Growth and Bond Fund 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 Smallcap Growth with a short position of Bond Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Bond Fund.

Diversification Opportunities for Smallcap Growth and Bond Fund

-0.54

Correlation Coefficient

Smallcap Growth  Bond Fund

Excellent diversification

The 3 months correlation between Smallcap and Bond is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Bond Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund Class and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Bond Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund Class has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Bond Fund go up and down completely randomly.

Pair Corralation between Smallcap Growth and Bond Fund

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 3.85 times more return on investment than Bond Fund. However, Smallcap Growth is 3.85 times more volatile than Bond Fund Class. It trades about 0.12 of its potential returns per unit of risk. Bond Fund Class is currently generating about -0.13 per unit of risk. If you would invest  1,553  in Smallcap Growth Fund on September 14, 2024 and sell it today you would earn a total of  133.00  from holding Smallcap Growth Fund or generate 8.56% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Bond Fund Class

Smallcap Growth

Risk-Adjusted Performance

9 of 100

OK

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

Bond Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smallcap Growth and Bond Fund

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

The idea behind Smallcap Growth Fund and Bond Fund Class 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.