Correlation Between Versatile Bond and Small Cap

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

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

Diversification Opportunities for Versatile Bond and Small Cap

0.09

Correlation Coefficient

Versatile Bond  Small Cap

Significant diversification

The 3 months correlation between Versatile and Small is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Versatile Bond Portfolio and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Versatile Bond 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 Versatile Bond Portfolio are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Versatile Bond i.e., Versatile Bond and Small Cap go up and down completely randomly.

Pair Corralation between Versatile Bond and Small Cap

Assuming the 90 days horizon Versatile Bond Portfolio is expected to generate 0.09 times more return on investment than Small Cap. However, Versatile Bond Portfolio is 11.23 times less risky than Small Cap. It trades about -0.04 of its potential returns per unit of risk. Small Cap Value Profund is currently generating about -0.18 per unit of risk. If you would invest  6,392  in Versatile Bond Portfolio on September 22, 2024 and sell it today you would lose (5.00) from holding Versatile Bond Portfolio or give up 0.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Versatile Bond Portfolio  vs.  Small Cap Value Profund

Versatile Bond Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Small Cap Value

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Versatile Bond and Small Cap

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

The idea behind Versatile Bond Portfolio and Small Cap Value Profund 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.