Correlation Between Small Cap and Gabelli Small

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

By analyzing existing cross correlation between Small Cap Stock and The Gabelli Small, you can compare the effects of market volatilities on Small Cap and Gabelli Small 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 Gabelli Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Gabelli Small.

Diversification Opportunities for Small Cap and Gabelli Small

0.72

Correlation Coefficient

Small Cap  Gabelli Small

Poor diversification

The 3 months correlation between Small and Gabelli is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and The Gabelli Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gabelli Small 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 Stock are associated (or correlated) with Gabelli Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gabelli Small has no effect on the direction of Small Cap i.e., Small Cap and Gabelli Small go up and down completely randomly.

Pair Corralation between Small Cap and Gabelli Small

Assuming the 90 days horizon Small Cap Stock is expected to generate 0.8 times more return on investment than Gabelli Small. However, Small Cap Stock is 1.25 times less risky than Gabelli Small. It trades about 0.17 of its potential returns per unit of risk. The Gabelli Small is currently generating about -0.01 per unit of risk. If you would invest  1,433  in Small Cap Stock on August 12, 2024 and sell it today you would earn a total of  82.00  from holding Small Cap Stock or generate 5.72% return on investment over 90 days.

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

Small Cap Stock  vs.  The Gabelli Small

Small Cap Stock

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Gabelli Small

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Gabelli Small are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gabelli Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Small Cap and Gabelli Small

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

The idea behind Small Cap Stock and The Gabelli Small 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.