Correlation Between Us Small and Us Defensive

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

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

Diversification Opportunities for Us Small and Us Defensive

0.94

Correlation Coefficient

Us Small  Us Defensive

Almost no diversification

The 3 months correlation between RSCRX and REUYX is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Us Small Cap and Us Defensive Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Defensive Equity and Us Small 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 Us Small Cap are associated (or correlated) with Us Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Defensive Equity has no effect on the direction of Us Small i.e., Us Small and Us Defensive go up and down completely randomly.

Pair Corralation between Us Small and Us Defensive

Assuming the 90 days horizon Us Small Cap is expected to under-perform the Us Defensive. In addition to that, Us Small is 3.71 times more volatile than Us Defensive Equity. It trades about -0.08 of its total potential returns per unit of risk. Us Defensive Equity is currently generating about 0.09 per unit of volatility. If you would invest  4,988  in Us Defensive Equity on September 20, 2024 and sell it today you would earn a total of  171.00  from holding Us Defensive Equity or generate 3.43% return on investment over 90 days.

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

Us Small Cap  vs.  Us Defensive Equity

Us Small Cap

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Us Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Us Defensive Equity

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Us Defensive Equity are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Small and Us Defensive

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

The idea behind Us Small Cap and Us Defensive Equity 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.