Correlation Between Balanced Strategy and Kinetics Small

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

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

Diversification Opportunities for Balanced Strategy and Kinetics Small

0.06

Correlation Coefficient

Balanced Strategy  Kinetics Small

Significant diversification

The 3 months correlation between Balanced and Kinetics is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Strategy Fund 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 Balanced Strategy 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 Balanced Strategy Fund 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 Balanced Strategy i.e., Balanced Strategy and Kinetics Small go up and down completely randomly.

Pair Corralation between Balanced Strategy and Kinetics Small

Assuming the 90 days horizon Balanced Strategy is expected to generate 12.38 times less return on investment than Kinetics Small. But when comparing it to its historical volatility, Balanced Strategy Fund is 5.64 times less risky than Kinetics Small. It trades about 0.07 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  15,354  in Kinetics Small Cap on September 18, 2024 and sell it today you would earn a total of  3,809  from holding Kinetics Small Cap or generate 24.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Balanced Strategy Fund  vs.  Kinetics Small Cap

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.

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.

Pair Trading with Balanced Strategy and Kinetics Small

The main advantage of trading using opposite Balanced Strategy and Kinetics Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Strategy 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 Balanced Strategy Fund 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.