Correlation Between Smallcap Growth and Internet Ultrasector

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

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

Diversification Opportunities for Smallcap Growth and Internet Ultrasector

0.68

Correlation Coefficient

Smallcap Growth  Internet Ultrasector

Poor diversification

The 3 months correlation between Smallcap and Internet is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund and Internet Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Internet Ultrasector and Smallcap Growth 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 Smallcap Growth Fund are associated (or correlated) with Internet Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Internet Ultrasector has no effect on the direction of Smallcap Growth i.e., Smallcap Growth and Internet Ultrasector go up and down completely randomly.

Pair Corralation between Smallcap Growth and Internet Ultrasector

Assuming the 90 days horizon Smallcap Growth Fund is expected to under-perform the Internet Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Smallcap Growth Fund is 1.14 times less risky than Internet Ultrasector. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Internet Ultrasector Profund is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,543  in Internet Ultrasector Profund on September 22, 2024 and sell it today you would earn a total of  1,131  from holding Internet Ultrasector Profund or generate 24.9% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Internet Ultrasector Profund

Smallcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smallcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Smallcap Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Internet Ultrasector

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Internet Ultrasector Profund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Internet Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smallcap Growth and Internet Ultrasector

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

The idea behind Smallcap Growth Fund and Internet Ultrasector 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 Stocks Directory module to find actively traded stocks across global markets.