Correlation Between Wasatch Small and Bright Rock
Can any of the company-specific risk be diversified away by investing in both Wasatch Small and Bright Rock 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 Bright Rock 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 Bright Rock Mid, you can compare the effects of market volatilities on Wasatch Small and Bright Rock 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 Bright Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wasatch Small and Bright Rock.
Diversification Opportunities for Wasatch Small and Bright Rock
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Wasatch and Bright is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Wasatch Small Cap and Bright Rock Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Rock Mid 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 Bright Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Rock Mid has no effect on the direction of Wasatch Small i.e., Wasatch Small and Bright Rock go up and down completely randomly.
Pair Corralation between Wasatch Small and Bright Rock
Assuming the 90 days horizon Wasatch Small Cap is expected to generate 1.86 times more return on investment than Bright Rock. However, Wasatch Small is 1.86 times more volatile than Bright Rock Mid. It trades about 0.14 of its potential returns per unit of risk. Bright Rock Mid is currently generating about 0.19 per unit of risk. If you would invest 1,114 in Wasatch Small Cap on September 12, 2024 and sell it today you would earn a total of 121.00 from holding Wasatch Small Cap or generate 10.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Wasatch Small Cap vs. Bright Rock Mid
Performance |
| Timeline |
| Wasatch Small Cap |
| Bright Rock Mid |
Wasatch Small and Bright Rock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wasatch Small and Bright Rock
The main advantage of trading using opposite Wasatch Small and Bright Rock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wasatch Small position performs unexpectedly, Bright Rock 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 Bright Rock will offset losses from the drop in Bright Rock's long position.| Wasatch Small vs. T Rowe Price | Wasatch Small vs. HUMANA INC | Wasatch Small vs. Aquagold International | Wasatch Small vs. Barloworld Ltd ADR |
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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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