Correlation Between Undiscovered Managers and Small Cap

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

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

Diversification Opportunities for Undiscovered Managers and Small Cap

0.98

Correlation Coefficient

Undiscovered Managers  Small Cap

Almost no diversification

The 3 months correlation between Undiscovered and Small is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Undiscovered Managers Behavior and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Undiscovered Managers 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 Undiscovered Managers Behavioral are associated (or correlated) with 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 Small Cap Value has no effect on the direction of Undiscovered Managers i.e., Undiscovered Managers and Small Cap go up and down completely randomly.

Pair Corralation between Undiscovered Managers and Small Cap

Assuming the 90 days horizon Undiscovered Managers Behavioral is expected to generate 0.95 times more return on investment than Small Cap. However, Undiscovered Managers Behavioral is 1.06 times less risky than Small Cap. It trades about 0.08 of its potential returns per unit of risk. Small Cap Value is currently generating about 0.06 per unit of risk. If you would invest  6,980  in Undiscovered Managers Behavioral on May 9, 2025 and sell it today you would earn a total of  394.00  from holding Undiscovered Managers Behavioral or generate 5.64% return on investment over 90 days.

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

Undiscovered Managers Behavior  vs.  Small Cap Value

Undiscovered Managers

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Undiscovered Managers Behavioral are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Undiscovered Managers 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

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Undiscovered Managers and Small Cap

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

The idea behind Undiscovered Managers Behavioral and Small Cap Value 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.