Correlation Between Undiscovered Managers and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both Undiscovered Managers and Smallcap Value 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 Undiscovered Managers and Smallcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Undiscovered Managers Behavioral and Smallcap Value Fund, you can compare the effects of market volatilities on Undiscovered Managers and Smallcap Value 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 Undiscovered Managers with a short position of Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Undiscovered Managers and Smallcap Value.
Diversification Opportunities for Undiscovered Managers and Smallcap Value
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Undiscovered and Smallcap is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Undiscovered Managers Behavior and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value and Undiscovered Managers 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 Undiscovered Managers Behavioral are associated (or correlated) with Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of Undiscovered Managers i.e., Undiscovered Managers and Smallcap Value go up and down completely randomly.
Pair Corralation between Undiscovered Managers and Smallcap Value
Assuming the 90 days horizon Undiscovered Managers is expected to generate 1.16 times less return on investment than Smallcap Value. But when comparing it to its historical volatility, Undiscovered Managers Behavioral is 1.06 times less risky than Smallcap Value. It trades about 0.03 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,118 in Smallcap Value Fund on September 2, 2024 and sell it today you would earn a total of 175.00 from holding Smallcap Value Fund or generate 15.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Undiscovered Managers Behavior vs. Smallcap Value Fund
Performance |
| Timeline |
| Undiscovered Managers |
| Smallcap Value |
Undiscovered Managers and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Undiscovered Managers and Smallcap Value
The main advantage of trading using opposite Undiscovered Managers and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Undiscovered Managers position performs unexpectedly, Smallcap Value 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 Smallcap Value will offset losses from the drop in Smallcap Value's long position.The idea behind Undiscovered Managers Behavioral and Smallcap Value 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.
| Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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