Correlation Between Vela Income and Hartford Small

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

By analyzing existing cross correlation between Vela Income Opportunities and The Hartford Small, you can compare the effects of market volatilities on Vela Income and Hartford 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 Vela Income with a short position of Hartford Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vela Income and Hartford Small.

Diversification Opportunities for Vela Income and Hartford Small

0.83

Correlation Coefficient

Vela Income  Hartford Small

Very poor diversification

The 3 months correlation between Vela and Hartford is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vela Income Opportunities and The Hartford Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hartford Small and Vela Income 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 Vela Income Opportunities are associated (or correlated) with Hartford Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hartford Small has no effect on the direction of Vela Income i.e., Vela Income and Hartford Small go up and down completely randomly.

Pair Corralation between Vela Income and Hartford Small

Assuming the 90 days horizon Vela Income is expected to generate 2.35 times less return on investment than Hartford Small. But when comparing it to its historical volatility, Vela Income Opportunities is 2.02 times less risky than Hartford Small. It trades about 0.05 of its potential returns per unit of risk. The Hartford Small is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,231  in The Hartford Small on September 12, 2024 and sell it today you would earn a total of  862.00  from holding The Hartford Small or generate 38.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Vela Income Opportunities  vs.  The Hartford Small

Vela Income Opportunities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vela Income Opportunities are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vela Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hartford Small

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Vela Income and Hartford Small

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

The idea behind Vela Income Opportunities and The Hartford 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.