Correlation Between Ultra-small Company and Oberweis Micro-cap

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Can any of the company-specific risk be diversified away by investing in both Ultra-small Company and Oberweis Micro-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 Company and Oberweis Micro-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 Fund and Oberweis Micro Cap Fund, you can compare the effects of market volatilities on Ultra-small Company and Oberweis Micro-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 Company with a short position of Oberweis Micro-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra-small Company and Oberweis Micro-cap.

Diversification Opportunities for Ultra-small Company and Oberweis Micro-cap

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Ultra-small and Oberweis is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Small Pany Fund and Oberweis Micro Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oberweis Micro Cap and Ultra-small Company 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 Fund are associated (or correlated) with Oberweis Micro-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oberweis Micro Cap has no effect on the direction of Ultra-small Company i.e., Ultra-small Company and Oberweis Micro-cap go up and down completely randomly.

Pair Corralation between Ultra-small Company and Oberweis Micro-cap

Assuming the 90 days horizon Ultra-small Company is expected to generate 1.09 times less return on investment than Oberweis Micro-cap. But when comparing it to its historical volatility, Ultra Small Pany Fund is 1.01 times less risky than Oberweis Micro-cap. It trades about 0.23 of its potential returns per unit of risk. Oberweis Micro Cap Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  4,076  in Oberweis Micro Cap Fund on September 6, 2024 and sell it today you would earn a total of  876.00  from holding Oberweis Micro Cap Fund or generate 21.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy98.44%
ValuesDaily Returns

Ultra Small Pany Fund  vs.  Oberweis Micro Cap Fund

 Performance 
       Timeline  
Ultra-small Company 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultra-small Company showed solid returns over the last few months and may actually be approaching a breakup point.
Oberweis Micro Cap 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Oberweis Micro Cap Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Oberweis Micro-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Ultra-small Company and Oberweis Micro-cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ultra-small Company and Oberweis Micro-cap

The main advantage of trading using opposite Ultra-small Company and Oberweis Micro-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra-small Company position performs unexpectedly, Oberweis Micro-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 Oberweis Micro-cap will offset losses from the drop in Oberweis Micro-cap's long position.
The idea behind Ultra Small Pany Fund and Oberweis Micro Cap 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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