Correlation Between Small Cap and Ultralatin America

Can any of the company-specific risk be diversified away by investing in both Small Cap and Ultralatin America 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 Ultralatin America 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 Ultralatin America Profund, you can compare the effects of market volatilities on Small Cap and Ultralatin America 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 Ultralatin America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Ultralatin America.

Diversification Opportunities for Small Cap and Ultralatin America

-0.72

Correlation Coefficient

Small Cap  Ultralatin America

Pay attention - limited upside

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

Pair Corralation between Small Cap and Ultralatin America

Assuming the 90 days horizon Small Cap Value Profund is expected to generate 0.59 times more return on investment than Ultralatin America. However, Small Cap Value Profund is 1.69 times less risky than Ultralatin America. It trades about 0.11 of its potential returns per unit of risk. Ultralatin America Profund is currently generating about -0.01 per unit of risk. If you would invest  7,688  in Small Cap Value Profund on September 15, 2024 and sell it today you would earn a total of  1,421  from holding Small Cap Value Profund or generate 18.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Small Cap Value Profund  vs.  Ultralatin America Profund

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.

Ultralatin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultralatin America Profund 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 Ultralatin America

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

The idea behind Small Cap Value Profund and Ultralatin America 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.