Correlation Between Zacks Small and Zacks Dividend

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

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

Diversification Opportunities for Zacks Small and Zacks Dividend

0.88

Correlation Coefficient

Zacks Small  Zacks Dividend

Very poor diversification

The 3 months correlation between Zacks and Zacks is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Zacks Small Cap E and Zacks Dividend Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Dividend and Zacks 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 Zacks Small Cap E are associated (or correlated) with Zacks Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Dividend has no effect on the direction of Zacks Small i.e., Zacks Small and Zacks Dividend go up and down completely randomly.

Pair Corralation between Zacks Small and Zacks Dividend

Assuming the 90 days horizon Zacks Small Cap E is expected to generate 2.16 times more return on investment than Zacks Dividend. However, Zacks Small is 2.16 times more volatile than Zacks Dividend Fund. It trades about 0.05 of its potential returns per unit of risk. Zacks Dividend Fund is currently generating about 0.05 per unit of risk. If you would invest  3,642  in Zacks Small Cap E on September 16, 2024 and sell it today you would earn a total of  140.00  from holding Zacks Small Cap E or generate 3.84% return on investment over 90 days.

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

Zacks Small Cap E  vs.  Zacks Dividend Fund

Zacks Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Zacks Small Cap E are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Zacks Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Zacks Dividend

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Zacks Small and Zacks Dividend

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

The idea behind Zacks Small Cap E and Zacks Dividend 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.