Correlation Between Smallcap Growth and Gateway Equity

Can any of the company-specific risk be diversified away by investing in both Smallcap Growth and Gateway Equity 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 Gateway Equity 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 Gateway Equity Call, you can compare the effects of market volatilities on Smallcap Growth and Gateway Equity 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 Gateway Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Gateway Equity.

Diversification Opportunities for Smallcap Growth and Gateway Equity

0.96

Correlation Coefficient

Smallcap Growth  Gateway Equity

Almost no diversification

The 3 months correlation between Smallcap and Gateway is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Gateway Equity Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gateway Equity Call 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 Gateway Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gateway Equity Call has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Gateway Equity go up and down completely randomly.

Pair Corralation between Smallcap Growth and Gateway Equity

Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 3.31 times more return on investment than Gateway Equity. However, Smallcap Growth is 3.31 times more volatile than Gateway Equity Call. It trades about 0.27 of its potential returns per unit of risk. Gateway Equity Call is currently generating about 0.42 per unit of risk. If you would invest  1,593  in Smallcap Growth Fund on September 5, 2024 and sell it today you would earn a total of  137.00  from holding Smallcap Growth Fund or generate 8.6% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Gateway Equity Call

Smallcap Growth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Smallcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Gateway Equity Call

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gateway Equity Call are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gateway Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smallcap Growth and Gateway Equity

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

The idea behind Smallcap Growth Fund and Gateway Equity Call 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.