Correlation Between Scout Small and Forty Portfolio

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

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

Diversification Opportunities for Scout Small and Forty Portfolio

0.68

Correlation Coefficient

Scout Small  Forty Portfolio

Poor diversification

The 3 months correlation between Scout and Forty is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Scout Small Cap and Forty Portfolio Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forty Portfolio Inst and Scout Small 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 Scout Small Cap are associated (or correlated) with Forty Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forty Portfolio Inst has no effect on the direction of Scout Small i.e., Scout Small and Forty Portfolio go up and down completely randomly.

Pair Corralation between Scout Small and Forty Portfolio

Assuming the 90 days horizon Scout Small Cap is expected to generate 1.28 times more return on investment than Forty Portfolio. However, Scout Small is 1.28 times more volatile than Forty Portfolio Institutional. It trades about 0.15 of its potential returns per unit of risk. Forty Portfolio Institutional is currently generating about 0.11 per unit of risk. If you would invest  2,964  in Scout Small Cap on July 30, 2025 and sell it today you would earn a total of  378.00  from holding Scout Small Cap or generate 12.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Scout Small Cap  vs.  Forty Portfolio Institutional

Scout Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Scout Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Scout Small may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Forty Portfolio Inst

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Forty Portfolio Institutional are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Forty Portfolio may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Pair Trading with Scout Small and Forty Portfolio

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

The idea behind Scout Small Cap and Forty Portfolio 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.