Correlation Between Zacks Small and Zacks All

Can any of the company-specific risk be diversified away by investing in both Zacks Small and Zacks All 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 All 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 All Cap Core, you can compare the effects of market volatilities on Zacks Small and Zacks All 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 All. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zacks Small and Zacks All.

Diversification Opportunities for Zacks Small and Zacks All

0.87

Correlation Coefficient

Zacks Small  Zacks All

Very poor diversification

The 3 months correlation between Zacks and Zacks is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Zacks Small Cap E and Zacks All Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks All Cap 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 All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks All Cap has no effect on the direction of Zacks Small i.e., Zacks Small and Zacks All go up and down completely randomly.

Pair Corralation between Zacks Small and Zacks All

Assuming the 90 days horizon Zacks Small is expected to generate 1.64 times less return on investment than Zacks All. In addition to that, Zacks Small is 1.92 times more volatile than Zacks All Cap Core. It trades about 0.05 of its total potential returns per unit of risk. Zacks All Cap Core is currently generating about 0.16 per unit of volatility. If you would invest  2,869  in Zacks All Cap Core on September 16, 2024 and sell it today you would earn a total of  207.00  from holding Zacks All Cap Core or generate 7.22% 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 All Cap Core

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 forward 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 All Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zacks All Cap Core are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Zacks All may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Zacks Small and Zacks All

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

The idea behind Zacks Small Cap E and Zacks All Cap Core 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.