Correlation Between Common Stock and Zacks Small-cap

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

By analyzing existing cross correlation between Common Stock Fund and Zacks Small Cap E, you can compare the effects of market volatilities on Common Stock and Zacks Small-cap 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 Common Stock with a short position of Zacks Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Common Stock and Zacks Small-cap.

Diversification Opportunities for Common Stock and Zacks Small-cap

0.94

Correlation Coefficient

Common Stock  Zacks Small-cap

Almost no diversification

The 3 months correlation between Common and Zacks is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Common Stock Fund and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small Cap and Common Stock 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 Common Stock Fund are associated (or correlated) with Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Common Stock i.e., Common Stock and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Common Stock and Zacks Small-cap

Assuming the 90 days horizon Common Stock is expected to generate 1.29 times less return on investment than Zacks Small-cap. But when comparing it to its historical volatility, Common Stock Fund is 1.01 times less risky than Zacks Small-cap. It trades about 0.1 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,899  in Zacks Small Cap E on May 3, 2025 and sell it today you would earn a total of  249.00  from holding Zacks Small Cap E or generate 8.59% return on investment over 90 days.

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

Common Stock Fund  vs.  Zacks Small Cap E

Common Stock

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Common Stock Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Common Stock may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Zacks Small Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zacks Small Cap E are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Zacks Small-cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Common Stock and Zacks Small-cap

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

The idea behind Common Stock Fund and Zacks Small Cap E 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.