Correlation Between Walden Smid and Walden Equity

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

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

Diversification Opportunities for Walden Smid and Walden Equity

0.96

Correlation Coefficient

Walden Smid  Walden Equity

Almost no diversification

The 3 months correlation between Walden and Walden is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Walden Smid Cap and Walden Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walden Equity and Walden Smid 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 Walden Smid Cap are associated (or correlated) with Walden Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walden Equity has no effect on the direction of Walden Smid i.e., Walden Smid and Walden Equity go up and down completely randomly.

Pair Corralation between Walden Smid and Walden Equity

Assuming the 90 days horizon Walden Smid Cap is expected to generate 1.34 times more return on investment than Walden Equity. However, Walden Smid is 1.34 times more volatile than Walden Equity Fund. It trades about 0.21 of its potential returns per unit of risk. Walden Equity Fund is currently generating about 0.15 per unit of risk. If you would invest  2,410  in Walden Smid Cap on September 5, 2024 and sell it today you would earn a total of  279.00  from holding Walden Smid Cap or generate 11.58% return on investment over 90 days.

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

Walden Smid Cap  vs.  Walden Equity Fund

Walden Smid Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walden Smid Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Walden Smid may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Walden Equity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walden Equity Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Walden Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walden Smid and Walden Equity

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

The idea behind Walden Smid Cap and Walden Equity 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.