Correlation Between Smead Value and Pear Tree

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

By analyzing existing cross correlation between Smead Value Fund and Pear Tree Essex, you can compare the effects of market volatilities on Smead Value and Pear Tree 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 Smead Value with a short position of Pear Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smead Value and Pear Tree.

Diversification Opportunities for Smead Value and Pear Tree

0.66

Correlation Coefficient

Smead Value  Pear Tree

Poor diversification

The 3 months correlation between Smead and Pear is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund and Pear Tree Essex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Essex and Smead Value 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 Smead Value Fund are associated (or correlated) with Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Essex has no effect on the direction of Smead Value i.e., Smead Value and Pear Tree go up and down completely randomly.

Pair Corralation between Smead Value and Pear Tree

Assuming the 90 days horizon Smead Value Fund is expected to generate 0.75 times more return on investment than Pear Tree. However, Smead Value Fund is 1.33 times less risky than Pear Tree. It trades about -0.15 of its potential returns per unit of risk. Pear Tree Essex is currently generating about -0.23 per unit of risk. If you would invest  8,538  in Smead Value Fund on September 12, 2024 and sell it today you would lose (204.00) from holding Smead Value Fund or give up 2.39% of portfolio value over 90 days.

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

Smead Value Fund  vs.  Pear Tree Essex

Smead Value Fund

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smead Value Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Smead Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pear Tree Essex

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Smead Value and Pear Tree

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

The idea behind Smead Value Fund and Pear Tree Essex 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.