Correlation Between Kinetics Small and Balanced Strategy

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

Diversification Opportunities for Kinetics Small and Balanced Strategy

0.06

Correlation Coefficient

Kinetics Small  Balanced Strategy

Significant diversification

The 3 months correlation between Kinetics and Balanced is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy 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 Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Kinetics Small i.e., Kinetics Small and Balanced Strategy go up and down completely randomly.

Pair Corralation between Kinetics Small and Balanced Strategy

Assuming the 90 days horizon Kinetics Small Cap is expected to under-perform the Balanced Strategy. In addition to that, Kinetics Small is 13.09 times more volatile than Balanced Strategy Fund. It trades about -0.1 of its total potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.46 per unit of volatility. If you would invest  1,086  in Balanced Strategy Fund on September 18, 2024 and sell it today you would earn a total of  24.00  from holding Balanced Strategy Fund or generate 2.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

Kinetics Small Cap  vs.  Balanced Strategy Fund

Kinetics Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 12 (%) 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.

Balanced Strategy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Strategy Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kinetics Small and Balanced Strategy

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

The idea behind Kinetics Small Cap and Balanced Strategy 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 Global Correlations module to find global opportunities by holding instruments from different markets.