Correlation Between First American and Small-cap Value

Can any of the company-specific risk be diversified away by investing in both First American and Small-cap 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 First American and Small-cap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First American Funds and Small Cap Value Series, you can compare the effects of market volatilities on First American and Small-cap 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 First American with a short position of Small-cap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of First American and Small-cap Value.

Diversification Opportunities for First American and Small-cap Value

0.47

Correlation Coefficient

First American  Small-cap Value

Very weak diversification

The 3 months correlation between First and Small-cap is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding First American Funds and Small Cap Value Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and First American 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 First American Funds are associated (or correlated) with Small-cap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of First American i.e., First American and Small-cap Value go up and down completely randomly.

Pair Corralation between First American and Small-cap Value

If you would invest  1,196  in Small Cap Value Series on May 1, 2025 and sell it today you would earn a total of  158.00  from holding Small Cap Value Series or generate 13.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

First American Funds  vs.  Small Cap Value Series

First American Funds

Risk-Adjusted Performance

Very Weak

Over the last 90 days First American Funds has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Series are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small-cap Value showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First American and Small-cap Value

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

The idea behind First American Funds and Small Cap Value Series 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 Global Correlations module to find global opportunities by holding instruments from different markets.