Correlation Between Smead Value and Applied Finance
Can any of the company-specific risk be diversified away by investing in both Smead Value and Applied Finance 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 Smead Value and Applied Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smead Value Fund and Applied Finance Explorer, you can compare the effects of market volatilities on Smead Value and Applied Finance 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 Smead Value with a short position of Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smead Value and Applied Finance.
Diversification Opportunities for Smead Value and Applied Finance
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smead and Applied is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer and Smead Value 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 Smead Value Fund are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Smead Value i.e., Smead Value and Applied Finance go up and down completely randomly.
Pair Corralation between Smead Value and Applied Finance
Assuming the 90 days horizon Smead Value Fund is expected to under-perform the Applied Finance. But the mutual fund apears to be less risky and, when comparing its historical volatility, Smead Value Fund is 1.36 times less risky than Applied Finance. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Applied Finance Explorer is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,253 in Applied Finance Explorer on October 26, 2024 and sell it today you would earn a total of 19.00 from holding Applied Finance Explorer or generate 0.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smead Value Fund vs. Applied Finance Explorer
Performance |
| Timeline |
| Smead Value Fund |
| Applied Finance Explorer |
Smead Value and Applied Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smead Value and Applied Finance
The main advantage of trading using opposite Smead Value and Applied Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smead Value position performs unexpectedly, Applied Finance 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 Applied Finance will offset losses from the drop in Applied Finance's long position.| Smead Value vs. Matthew 25 Fund | Smead Value vs. Baron Real Estate | Smead Value vs. Buffalo Emerging Opportunities | Smead Value vs. Eventide Gilead Fund |
| Applied Finance vs. Thrivent Small Cap | Applied Finance vs. Applied Finance Select | Applied Finance vs. Parnassus Endeavor Fund | Applied Finance vs. Queens Road Small |
Check out your portfolio center.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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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