Correlation Between Pace Smallmedium and Kinetics Small

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

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

Diversification Opportunities for Pace Smallmedium and Kinetics Small

0.91

Correlation Coefficient

Pace Smallmedium  Kinetics Small

Almost no diversification

The 3 months correlation between Pace and Kinetics is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Pace Smallmedium Value 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 Pace Smallmedium 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 Pace Smallmedium Value 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 Pace Smallmedium i.e., Pace Smallmedium and Kinetics Small go up and down completely randomly.

Pair Corralation between Pace Smallmedium and Kinetics Small

Assuming the 90 days horizon Pace Smallmedium is expected to generate 3.13 times less return on investment than Kinetics Small. But when comparing it to its historical volatility, Pace Smallmedium Value is 2.23 times less risky than Kinetics Small. It trades about 0.17 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  14,397  in Kinetics Small Cap on September 12, 2024 and sell it today you would earn a total of  5,509  from holding Kinetics Small Cap or generate 38.26% return on investment over 90 days.

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

Pace Smallmedium Value  vs.  Kinetics Small Cap

Pace Smallmedium Value

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Smallmedium Value are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Smallmedium may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Pace Smallmedium and Kinetics Small

The main advantage of trading using opposite Pace Smallmedium and Kinetics Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pace Smallmedium 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 Pace Smallmedium Value 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.