Correlation Between Touchstone Small and Sentinel Small

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

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

Diversification Opportunities for Touchstone Small and Sentinel Small

0.93

Correlation Coefficient

Touchstone Small  Sentinel Small

Almost no diversification

The 3 months correlation between Touchstone and Sentinel is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Touchstone Small Cap and Sentinel Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Small and Touchstone 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 Touchstone Small Cap are associated (or correlated) with Sentinel Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Small has no effect on the direction of Touchstone Small i.e., Touchstone Small and Sentinel Small go up and down completely randomly.

Pair Corralation between Touchstone Small and Sentinel Small

Assuming the 90 days horizon Touchstone Small is expected to generate 1.17 times less return on investment than Sentinel Small. In addition to that, Touchstone Small is 1.01 times more volatile than Sentinel Small. It trades about 0.04 of its total potential returns per unit of risk. Sentinel Small is currently generating about 0.05 per unit of volatility. If you would invest  536.00  in Sentinel Small on September 19, 2024 and sell it today you would earn a total of  122.00  from holding Sentinel Small or generate 22.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.79%
Values	Daily Returns

Touchstone Small Cap  vs.  Sentinel Small

Touchstone Small Cap

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Small Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Touchstone Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sentinel Small

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Touchstone Small and Sentinel Small

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

The idea behind Touchstone Small Cap and Sentinel Small 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.