Correlation Between Small Cap and Ultrainternational

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

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

Diversification Opportunities for Small Cap and Ultrainternational

-0.01

Correlation Coefficient

Small Cap  Ultrainternational

Good diversification

The 3 months correlation between Small and Ultrainternational is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Ultrainternational Profund Ult in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrainternational 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 Equity are associated (or correlated) with Ultrainternational. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrainternational has no effect on the direction of Small Cap i.e., Small Cap and Ultrainternational go up and down completely randomly.

Pair Corralation between Small Cap and Ultrainternational

Assuming the 90 days horizon Small Cap Equity is expected to generate 0.94 times more return on investment than Ultrainternational. However, Small Cap Equity is 1.06 times less risky than Ultrainternational. It trades about -0.02 of its potential returns per unit of risk. Ultrainternational Profund Ultrainternational is currently generating about -0.14 per unit of risk. If you would invest  1,838  in Small Cap Equity on October 10, 2024 and sell it today you would lose (43.00) from holding Small Cap Equity or give up 2.34% of portfolio value over 90 days.

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

Small Cap Equity  vs.  Ultrainternational Profund Ult

Small Cap Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultrainternational

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrainternational Profund Ultrainternational 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 February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Small Cap and Ultrainternational

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

The idea behind Small Cap Equity and Ultrainternational Profund Ultrainternational 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.