Correlation Between Deutsche and Steward Small

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

By analyzing existing cross correlation between Deutsche Sp 500 and Steward Small Mid Cap, you can compare the effects of market volatilities on Deutsche and Steward Small 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 Deutsche with a short position of Steward Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche and Steward Small.

Diversification Opportunities for Deutsche and Steward Small

0.92

Correlation Coefficient

Deutsche  Steward Small

Almost no diversification

The 3 months correlation between Deutsche and Steward is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Sp 500 and Steward Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Small Mid and Deutsche 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 Deutsche Sp 500 are associated (or correlated) with Steward Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Small Mid has no effect on the direction of Deutsche i.e., Deutsche and Steward Small go up and down completely randomly.

Pair Corralation between Deutsche and Steward Small

Assuming the 90 days horizon Deutsche Sp 500 is expected to generate 0.72 times more return on investment than Steward Small. However, Deutsche Sp 500 is 1.39 times less risky than Steward Small. It trades about 0.14 of its potential returns per unit of risk. Steward Small Mid Cap is currently generating about 0.06 per unit of risk. If you would invest  4,008  in Deutsche Sp 500 on September 12, 2024 and sell it today you would earn a total of  1,164  from holding Deutsche Sp 500 or generate 29.04% return on investment over 90 days.

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

Deutsche Sp 500  vs.  Steward Small Mid Cap

Deutsche Sp 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Sp 500 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Deutsche may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Steward Small Mid

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steward Small Mid Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Steward Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deutsche and Steward Small

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

The idea behind Deutsche Sp 500 and Steward Small Mid Cap 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.