Correlation Between Small Cap and Precious Metals

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

By analyzing existing cross correlation between Small Cap Value Profund and Precious Metals Ultrasector, you can compare the effects of market volatilities on Small Cap and Precious Metals 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 Precious Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Precious Metals.

Diversification Opportunities for Small Cap and Precious Metals

-0.72

Correlation Coefficient

Small Cap  Precious Metals

Pay attention - limited upside

The 3 months correlation between Small and Precious is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Precious Metals Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals Ultr 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 Value Profund are associated (or correlated) with Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals Ultr has no effect on the direction of Small Cap i.e., Small Cap and Precious Metals go up and down completely randomly.

Pair Corralation between Small Cap and Precious Metals

Assuming the 90 days horizon Small Cap Value Profund is expected to generate 0.43 times more return on investment than Precious Metals. However, Small Cap Value Profund is 2.33 times less risky than Precious Metals. It trades about 0.11 of its potential returns per unit of risk. Precious Metals Ultrasector is currently generating about -0.07 per unit of risk. If you would invest  8,437  in Small Cap Value Profund on September 15, 2024 and sell it today you would earn a total of  712.00  from holding Small Cap Value Profund or generate 8.44% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Precious Metals Ultrasector

Small Cap Value

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Precious Metals Ultr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals Ultrasector 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 basic 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.

Pair Trading with Small Cap and Precious Metals

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

The idea behind Small Cap Value Profund and Precious Metals Ultrasector 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..