Correlation Between Managed Volatility and Ultra-small Company

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

By analyzing existing cross correlation between Managed Volatility Fund and Ultra Small Pany Fund, you can compare the effects of market volatilities on Managed Volatility and Ultra-small Company 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 Managed Volatility with a short position of Ultra-small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Managed Volatility and Ultra-small Company.

Diversification Opportunities for Managed Volatility and Ultra-small Company

0.4

Correlation Coefficient

Managed Volatility  Ultra-small Company

Very weak diversification

The 3 months correlation between Managed and Ultra-small is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Managed Volatility Fund and Ultra Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra-small Company and Managed Volatility 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 Managed Volatility Fund are associated (or correlated) with Ultra-small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra-small Company has no effect on the direction of Managed Volatility i.e., Managed Volatility and Ultra-small Company go up and down completely randomly.

Pair Corralation between Managed Volatility and Ultra-small Company

Assuming the 90 days horizon Managed Volatility is expected to generate 22.4 times less return on investment than Ultra-small Company. But when comparing it to its historical volatility, Managed Volatility Fund is 41.31 times less risky than Ultra-small Company. It trades about 0.38 of its potential returns per unit of risk. Ultra Small Pany Fund is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,889  in Ultra Small Pany Fund on September 4, 2024 and sell it today you would earn a total of  514.00  from holding Ultra Small Pany Fund or generate 17.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Managed Volatility Fund  vs.  Ultra Small Pany Fund

Managed Volatility

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Managed Volatility Fund are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Managed Volatility is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultra-small Company

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultra-small Company showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Managed Volatility and Ultra-small Company

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

The idea behind Managed Volatility Fund and Ultra Small Pany Fund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.