Correlation Between Large Cap and Kinetics Paradigm

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

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

Diversification Opportunities for Large Cap and Kinetics Paradigm

0.69

Correlation Coefficient

Large Cap  Kinetics Paradigm

Poor diversification

The 3 months correlation between Large and Kinetics is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Kinetics Paradigm Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Paradigm and Large 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 Large Cap Fund are associated (or correlated) with Kinetics Paradigm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Paradigm has no effect on the direction of Large Cap i.e., Large Cap and Kinetics Paradigm go up and down completely randomly.

Pair Corralation between Large Cap and Kinetics Paradigm

Assuming the 90 days horizon Large Cap is expected to generate 1.81 times less return on investment than Kinetics Paradigm. But when comparing it to its historical volatility, Large Cap Fund is 2.07 times less risky than Kinetics Paradigm. It trades about 0.06 of its potential returns per unit of risk. Kinetics Paradigm Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,848  in Kinetics Paradigm Fund on September 15, 2024 and sell it today you would earn a total of  4,915  from holding Kinetics Paradigm Fund or generate 49.91% return on investment over 90 days.

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

Large Cap Fund  vs.  Kinetics Paradigm Fund

Large Cap Fund

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kinetics Paradigm

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Paradigm Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Paradigm showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Large Cap and Kinetics Paradigm

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

The idea behind Large Cap Fund and Kinetics Paradigm 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.