Correlation Between Small Cap and Ultra Fund

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

By analyzing existing cross correlation between Small Cap Growth and Ultra Fund I, you can compare the effects of market volatilities on Small Cap and Ultra Fund 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 Ultra Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Ultra Fund.

Diversification Opportunities for Small Cap and Ultra Fund

0.85

Correlation Coefficient

Small Cap  Ultra Fund

Very poor diversification

The 3 months correlation between Small and Ultra is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth and Ultra Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Fund I 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 are associated (or correlated) with Ultra Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Fund I has no effect on the direction of Small Cap i.e., Small Cap and Ultra Fund go up and down completely randomly.

Pair Corralation between Small Cap and Ultra Fund

Assuming the 90 days horizon Small Cap is expected to generate 1.7 times less return on investment than Ultra Fund. In addition to that, Small Cap is 1.02 times more volatile than Ultra Fund I. It trades about 0.06 of its total potential returns per unit of risk. Ultra Fund I is currently generating about 0.11 per unit of volatility. If you would invest  5,770  in Ultra Fund I on September 23, 2024 and sell it today you would earn a total of  4,341  from holding Ultra Fund I or generate 75.23% return on investment over 90 days.

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

Small Cap Growth  vs.  Ultra Fund I

Small Cap Growth

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. 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.

Ultra Fund I

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund I are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultra Fund 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 Ultra Fund

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

The idea behind Small Cap Growth and Ultra Fund I 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.