Correlation Between Falling Dollar and Short Small

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

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

Diversification Opportunities for Falling Dollar and Short Small

0.74

Correlation Coefficient

Falling Dollar  Short Small

Poor diversification

The 3 months correlation between Falling and Short is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Falling Dollar Profund and Short Small Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Small Cap and Falling Dollar 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 Falling Dollar Profund are associated (or correlated) with Short Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Small Cap has no effect on the direction of Falling Dollar i.e., Falling Dollar and Short Small go up and down completely randomly.

Pair Corralation between Falling Dollar and Short Small

Assuming the 90 days horizon Falling Dollar Profund is expected to under-perform the Short Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Falling Dollar Profund is 3.32 times less risky than Short Small. The mutual fund trades about -0.27 of its potential returns per unit of risk. The Short Small Cap Profund is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,386  in Short Small Cap Profund on September 20, 2024 and sell it today you would earn a total of  6.00  from holding Short Small Cap Profund or generate 0.11% return on investment over 90 days.

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

Falling Dollar Profund  vs.  Short Small Cap Profund

Falling Dollar Profund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falling Dollar Profund 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.

Short Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Small Cap Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Short Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Falling Dollar and Short Small

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

The idea behind Falling Dollar Profund and Short Small Cap Profund 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.