Correlation Between Moderately Aggressive and Highland Small-cap

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

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

Diversification Opportunities for Moderately Aggressive and Highland Small-cap

0.9

Correlation Coefficient

Moderately Aggressive  Highland Small-cap

Almost no diversification

The 3 months correlation between Moderately and Highland is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Highland Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highland Small Cap and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Highland 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 Highland Small Cap has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Highland Small-cap go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Highland Small-cap

Assuming the 90 days horizon Moderately Aggressive is expected to generate 1.76 times less return on investment than Highland Small-cap. But when comparing it to its historical volatility, Moderately Aggressive Balanced is 1.77 times less risky than Highland Small-cap. It trades about 0.2 of its potential returns per unit of risk. Highland Small Cap Equity is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  620.00  in Highland Small Cap Equity on September 2, 2024 and sell it today you would earn a total of  74.00  from holding Highland Small Cap Equity or generate 11.94% return on investment over 90 days.

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

Moderately Aggressive Balanced  vs.  Highland Small Cap Equity

Moderately Aggressive

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Moderately Aggressive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Highland Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Highland Small Cap Equity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Highland Small-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Moderately Aggressive and Highland Small-cap

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

The idea behind Moderately Aggressive Balanced and Highland Small Cap 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.