Correlation Between Small-cap Value and Spectrum Fund

Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Spectrum 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 Spectrum 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 Spectrum Fund Institutional, you can compare the effects of market volatilities on Small-cap Value and Spectrum 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 Spectrum Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Spectrum Fund.

Diversification Opportunities for Small-cap Value and Spectrum Fund

0.97

Correlation Coefficient

Small-cap Value  Spectrum Fund

Almost no diversification

The 3 months correlation between Small-cap and Spectrum is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Series and Spectrum Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Fund Instit 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 Spectrum Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Fund Instit has no effect on the direction of Small-cap Value i.e., Small-cap Value and Spectrum Fund go up and down completely randomly.

Pair Corralation between Small-cap Value and Spectrum Fund

Assuming the 90 days horizon Small Cap Value Series is expected to generate 1.67 times more return on investment than Spectrum Fund. However, Small-cap Value is 1.67 times more volatile than Spectrum Fund Institutional. It trades about 0.18 of its potential returns per unit of risk. Spectrum Fund Institutional is currently generating about 0.27 per unit of risk. If you would invest  1,336  in Small Cap Value Series on April 29, 2025 and sell it today you would earn a total of  168.00  from holding Small Cap Value Series or generate 12.57% 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.  Spectrum Fund Institutional

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

Spectrum Fund Instit

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spectrum Fund Institutional are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Spectrum Fund may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Small-cap Value and Spectrum Fund

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

The idea behind Small Cap Value Series and Spectrum Fund Institutional 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.