Correlation Between Small Cap and Europac Gold

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

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

Diversification Opportunities for Small Cap and Europac Gold

-0.09

Correlation Coefficient

Small Cap  Europac Gold

Good diversification

The 3 months correlation between Small and Europac is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Special and Europac Gold Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europac Gold and Small Cap 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 Small Cap Special are associated (or correlated) with Europac Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europac Gold has no effect on the direction of Small Cap i.e., Small Cap and Europac Gold go up and down completely randomly.

Pair Corralation between Small Cap and Europac Gold

Assuming the 90 days horizon Small Cap Special is expected to generate 0.63 times more return on investment than Europac Gold. However, Small Cap Special is 1.59 times less risky than Europac Gold. It trades about 0.14 of its potential returns per unit of risk. Europac Gold Fund is currently generating about 0.05 per unit of risk. If you would invest  1,231  in Small Cap Special on September 4, 2024 and sell it today you would earn a total of  128.00  from holding Small Cap Special or generate 10.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Small Cap Special  vs.  Europac Gold Fund

Small Cap Special

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Special are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Europac Gold

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Small Cap and Europac Gold

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

The idea behind Small Cap Special and Europac Gold Fund 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.