Correlation Between Northern Small and Kinetics Small

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

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

Diversification Opportunities for Northern Small and Kinetics Small

0.41

Correlation Coefficient

Northern Small  Kinetics Small

Very weak diversification

The 3 months correlation between Northern and Kinetics is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap and Northern 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 Northern Small Cap are associated (or correlated) with Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Northern Small i.e., Northern Small and Kinetics Small go up and down completely randomly.

Pair Corralation between Northern Small and Kinetics Small

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Kinetics Small. In addition to that, Northern Small is 2.0 times more volatile than Kinetics Small Cap. It trades about -0.13 of its total potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.09 per unit of volatility. If you would invest  16,189  in Kinetics Small Cap on September 22, 2024 and sell it today you would earn a total of  2,033  from holding Kinetics Small Cap or generate 12.56% return on investment over 90 days.

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

Northern Small Cap  vs.  Kinetics Small Cap

Northern Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Kinetics Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 6 (%) 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.

Pair Trading with Northern Small and Kinetics Small

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

The idea behind Northern Small Cap and Kinetics Small Cap 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.