Correlation Between Kinetics Small and Small Cap

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

Diversification Opportunities for Kinetics Small and Small Cap

0.91

Correlation Coefficient

Kinetics Small  Small Cap

Almost no diversification

The 3 months correlation between Kinetics and Small is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Kinetics 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 Kinetics Small Cap 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 Kinetics Small i.e., Kinetics Small and Small Cap go up and down completely randomly.

Pair Corralation between Kinetics Small and Small Cap

Assuming the 90 days horizon Kinetics Small Cap is expected to under-perform the Small Cap. In addition to that, Kinetics Small is 4.0 times more volatile than Small Cap Value. It trades about -0.07 of its total potential returns per unit of risk. Small Cap Value is currently generating about -0.05 per unit of volatility. If you would invest  1,201  in Small Cap Value on September 12, 2024 and sell it today you would lose (11.00) from holding Small Cap Value or give up 0.92% of portfolio value over 90 days.

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

Kinetics Small Cap  vs.  Small Cap Value

Kinetics Small Cap

Risk-Adjusted Performance

18 of 100

Solid

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

Small Cap Value

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Kinetics Small and Small Cap

The main advantage of trading using opposite Kinetics Small and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinetics 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 Kinetics Small Cap and Small Cap Value 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.