Correlation Between Ultra Small and Ultra-small Company

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Can any of the company-specific risk be diversified away by investing in both Ultra Small 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 Ultra Small 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 Ultra Small Pany Market and Ultra Small Pany Fund, you can compare the effects of market volatilities on Ultra Small 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 Ultra Small with a short position of Ultra-small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Small and Ultra-small Company.

Diversification Opportunities for Ultra Small and Ultra-small Company

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Ultra and Ultra-small is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Small Pany Market 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 Ultra Small 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 Ultra Small Pany Market 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 Ultra Small i.e., Ultra Small and Ultra-small Company go up and down completely randomly.

Pair Corralation between Ultra Small and Ultra-small Company

Assuming the 90 days horizon Ultra Small is expected to generate 1.01 times less return on investment than Ultra-small Company. In addition to that, Ultra Small is 1.03 times more volatile than Ultra Small Pany Fund. It trades about 0.07 of its total potential returns per unit of risk. Ultra Small Pany Fund is currently generating about 0.08 per unit of volatility. If you would invest  2,882  in Ultra Small Pany Fund on October 10, 2024 and sell it today you would earn a total of  430.00  from holding Ultra Small Pany Fund or generate 14.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Ultra Small Pany Market  vs.  Ultra Small Pany Fund

 Performance 
       Timeline  
Ultra Small Pany 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Market are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Small showed solid returns over the last few months and may actually be approaching a breakup point.
Ultra-small Company 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Fund are ranked lower than 10 (%) 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.

Ultra Small and Ultra-small Company Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ultra Small and Ultra-small Company

The main advantage of trading using opposite Ultra Small and Ultra-small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Small 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 Ultra Small Pany Market 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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