Correlation Between Profunds Large and Small Cap

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

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

Diversification Opportunities for Profunds Large and Small Cap

0.86

Correlation Coefficient

Profunds Large  Small Cap

Very poor diversification

The 3 months correlation between Profunds and Small is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Large Cap Growth and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Profunds Large 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 Profunds Large Cap Growth 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 Profunds Large i.e., Profunds Large and Small Cap go up and down completely randomly.

Pair Corralation between Profunds Large and Small Cap

Assuming the 90 days horizon Profunds Large Cap Growth is expected to generate 0.75 times more return on investment than Small Cap. However, Profunds Large Cap Growth is 1.34 times less risky than Small Cap. It trades about 0.21 of its potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.09 per unit of risk. If you would invest  3,234  in Profunds Large Cap Growth on September 18, 2024 and sell it today you would earn a total of  420.00  from holding Profunds Large Cap Growth or generate 12.99% return on investment over 90 days.

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

Profunds Large Cap Growth  vs.  Small Cap Value Profund

Profunds Large Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Profunds Large Cap Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Profunds Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Small Cap Value

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 7 (%) 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 Profunds Large and Small Cap

The main advantage of trading using opposite Profunds Large and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Profunds Large 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 Profunds Large Cap Growth and Small Cap Value 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.