Correlation Between Small Cap and Touchstone Premium

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

By analyzing existing cross correlation between Small Cap Core and Touchstone Premium Yield, you can compare the effects of market volatilities on Small Cap and Touchstone Premium 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 with a short position of Touchstone Premium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Touchstone Premium.

Diversification Opportunities for Small Cap and Touchstone Premium

0.37

Correlation Coefficient

Small Cap  Touchstone Premium

Weak diversification

The 3 months correlation between Small and Touchstone is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Touchstone Premium Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Premium Yield and Small Cap 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 Core are associated (or correlated) with Touchstone Premium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Premium Yield has no effect on the direction of Small Cap i.e., Small Cap and Touchstone Premium go up and down completely randomly.

Pair Corralation between Small Cap and Touchstone Premium

Assuming the 90 days horizon Small Cap Core is expected to generate 1.24 times more return on investment than Touchstone Premium. However, Small Cap is 1.24 times more volatile than Touchstone Premium Yield. It trades about 0.14 of its potential returns per unit of risk. Touchstone Premium Yield is currently generating about 0.03 per unit of risk. If you would invest  1,106  in Small Cap Core on May 22, 2025 and sell it today you would earn a total of  104.00  from holding Small Cap Core or generate 9.4% return on investment over 90 days.

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

Small Cap Core  vs.  Touchstone Premium Yield

Small Cap Core

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Touchstone Premium Yield

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Premium Yield are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Touchstone Premium 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 and Touchstone Premium

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

The idea behind Small Cap Core and Touchstone Premium Yield 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.