Correlation Between Small-cap Value and High-yield Fund

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

By analyzing existing cross correlation between Small Cap Value Series and High Yield Fund R5, you can compare the effects of market volatilities on Small-cap Value and High-yield Fund 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 Small-cap Value with a short position of High-yield Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and High-yield Fund.

Diversification Opportunities for Small-cap Value and High-yield Fund

0.94

Correlation Coefficient

Small-cap Value  High-yield Fund

Almost no diversification

The 3 months correlation between Small-cap and High-yield is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and High Yield Fund R5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund and Small-cap Value 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 Small Cap Value Series are associated (or correlated) with High-yield Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Small-cap Value i.e., Small-cap Value and High-yield Fund go up and down completely randomly.

Pair Corralation between Small-cap Value and High-yield Fund

Assuming the 90 days horizon Small Cap Value Series is expected to generate 5.79 times more return on investment than High-yield Fund. However, Small-cap Value is 5.79 times more volatile than High Yield Fund R5. It trades about 0.16 of its potential returns per unit of risk. High Yield Fund R5 is currently generating about 0.21 per unit of risk. If you would invest  1,353  in Small Cap Value Series on May 4, 2025 and sell it today you would earn a total of  145.00  from holding Small Cap Value Series or generate 10.72% return on investment over 90 days.

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

Small Cap Value Series  vs.  High Yield Fund R5

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 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Small-cap Value may actually be approaching a critical reversion point that can send shares even higher in September 2025.

High Yield Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in High Yield Fund R5 are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, High-yield Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small-cap Value and High-yield Fund

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

The idea behind Small Cap Value Series and High Yield Fund R5 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.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.