Correlation Between Ultra Small and Small Cap

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

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

Diversification Opportunities for Ultra Small and Small Cap

0.55

Correlation Coefficient

Ultra Small  Small Cap

Very weak diversification

The 3 months correlation between Ultra and Small is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Small Pany Market and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Ultra 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 Ultra Small Pany Market 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 Ultra Small i.e., Ultra Small and Small Cap go up and down completely randomly.

Pair Corralation between Ultra Small and Small Cap

Assuming the 90 days horizon Ultra Small Pany Market is expected to generate 1.01 times more return on investment than Small Cap. However, Ultra Small is 1.01 times more volatile than Small Cap Value Fund. It trades about 0.04 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about 0.02 per unit of risk. If you would invest  1,035  in Ultra Small Pany Market on September 25, 2024 and sell it today you would earn a total of  221.00  from holding Ultra Small Pany Market or generate 21.35% return on investment over 90 days.

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

Ultra Small Pany Market  vs.  Small Cap Value Fund

Ultra Small Pany

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Market are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ultra Small and Small Cap

The main advantage of trading using opposite Ultra Small and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Small 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 Ultra Small Pany Market and Small Cap Value Fund 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.