Correlation Between Small Cap and Ultrashort Small

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

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

Diversification Opportunities for Small Cap and Ultrashort Small

-0.91

Correlation Coefficient

Small Cap  Ultrashort Small

Pay attention - limited upside

The 3 months correlation between Small and Ultrashort is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth Profund and Ultrashort Small Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Small Cap and Small Cap 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 Small Cap Growth Profund are associated (or correlated) with Ultrashort Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Small Cap has no effect on the direction of Small Cap i.e., Small Cap and Ultrashort Small go up and down completely randomly.

Pair Corralation between Small Cap and Ultrashort Small

Assuming the 90 days horizon Small Cap Growth Profund is expected to under-perform the Ultrashort Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Cap Growth Profund is 2.12 times less risky than Ultrashort Small. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Ultrashort Small Cap Profund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,513  in Ultrashort Small Cap Profund on September 19, 2024 and sell it today you would earn a total of  296.00  from holding Ultrashort Small Cap Profund or generate 6.56% return on investment over 90 days.

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

Small Cap Growth Profund  vs.  Ultrashort Small Cap Profund

Small Cap Growth

Risk-Adjusted Performance

0 of 100

Weak

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

Ultrashort Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Small Cap Profund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultrashort Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Ultrashort Small

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

The idea behind Small Cap Growth Profund and Ultrashort Small Cap 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.