Correlation Between Wasatch Small and Wasatch Long/short
Can any of the company-specific risk be diversified away by investing in both Wasatch Small and Wasatch Long/short 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 Wasatch Small and Wasatch Long/short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wasatch Small Cap and Wasatch Longshort Alpha, you can compare the effects of market volatilities on Wasatch Small and Wasatch Long/short 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 Wasatch Small with a short position of Wasatch Long/short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wasatch Small and Wasatch Long/short.
Diversification Opportunities for Wasatch Small and Wasatch Long/short
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wasatch and Wasatch is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Small Cap and Wasatch Longshort Alpha in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Longshort Alpha and Wasatch 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 Wasatch Small Cap are associated (or correlated) with Wasatch Long/short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Longshort Alpha has no effect on the direction of Wasatch Small i.e., Wasatch Small and Wasatch Long/short go up and down completely randomly.
Pair Corralation between Wasatch Small and Wasatch Long/short
Assuming the 90 days horizon Wasatch Small Cap is expected to generate 1.45 times more return on investment than Wasatch Long/short. However, Wasatch Small is 1.45 times more volatile than Wasatch Longshort Alpha. It trades about 0.1 of its potential returns per unit of risk. Wasatch Longshort Alpha is currently generating about 0.11 per unit of risk. If you would invest 3,345 in Wasatch Small Cap on September 4, 2024 and sell it today you would earn a total of 1,085 from holding Wasatch Small Cap or generate 32.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Wasatch Small Cap vs. Wasatch Longshort Alpha
Performance |
| Timeline |
| Wasatch Small Cap |
| Wasatch Longshort Alpha |
Wasatch Small and Wasatch Long/short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wasatch Small and Wasatch Long/short
The main advantage of trading using opposite Wasatch Small and Wasatch Long/short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wasatch Small position performs unexpectedly, Wasatch Long/short 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 Wasatch Long/short will offset losses from the drop in Wasatch Long/short's long position.| Wasatch Small vs. Wasatch E Growth | Wasatch Small vs. Wasatch Small Cap | Wasatch Small vs. Wasatch Micro Cap | Wasatch Small vs. Wasatch Ultra Growth |
| Wasatch Long/short vs. Wasatch Small Cap | Wasatch Long/short vs. Wasatch Emerging Markets | Wasatch Long/short vs. Wasatch Emerging Markets | Wasatch Long/short vs. Wasatch Global Select |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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