Correlation Between Small-cap Value and Ultrasmall-cap Profund

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

By analyzing existing cross correlation between Small Cap Value Fund and Ultrasmall Cap Profund Ultrasmall Cap, you can compare the effects of market volatilities on Small-cap Value and Ultrasmall-cap Profund 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 Value with a short position of Ultrasmall-cap Profund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Ultrasmall-cap Profund.

Diversification Opportunities for Small-cap Value and Ultrasmall-cap Profund

0.99

Correlation Coefficient

Small-cap Value  Ultrasmall-cap Profund

No risk reduction

The 3 months correlation between Small-cap and Ultrasmall-cap is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Ultrasmall Cap Profund Ultrasm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrasmall Cap Profund and Small-cap Value 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 Fund are associated (or correlated) with Ultrasmall-cap Profund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrasmall Cap Profund has no effect on the direction of Small-cap Value i.e., Small-cap Value and Ultrasmall-cap Profund go up and down completely randomly.

Pair Corralation between Small-cap Value and Ultrasmall-cap Profund

Assuming the 90 days horizon Small Cap Value Fund is expected to generate 0.48 times more return on investment than Ultrasmall-cap Profund. However, Small Cap Value Fund is 2.07 times less risky than Ultrasmall-cap Profund. It trades about -0.12 of its potential returns per unit of risk. Ultrasmall Cap Profund Ultrasmall Cap is currently generating about -0.11 per unit of risk. If you would invest  3,784  in Small Cap Value Fund on December 25, 2024 and sell it today you would lose (309.00) from holding Small Cap Value Fund or give up 8.17% of portfolio value over 90 days.

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

Small Cap Value Fund  vs.  Ultrasmall Cap Profund Ultrasm

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Ultrasmall Cap Profund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ultrasmall Cap Profund Ultrasmall Cap 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 forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Small-cap Value and Ultrasmall-cap Profund

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

The idea behind Small Cap Value Fund and Ultrasmall Cap Profund Ultrasmall Cap 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.