Correlation Between Kinetics Small and Enhanced

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

By analyzing existing cross correlation between Kinetics Small Cap and Enhanced Large Pany, you can compare the effects of market volatilities on Kinetics Small and Enhanced 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 Kinetics Small with a short position of Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinetics Small and Enhanced.

Diversification Opportunities for Kinetics Small and Enhanced

0.78

Correlation Coefficient

Kinetics Small  Enhanced

Poor diversification

The 3 months correlation between Kinetics and Enhanced is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Enhanced Large Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enhanced Large Pany and Kinetics 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 Kinetics Small Cap are associated (or correlated) with Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enhanced Large Pany has no effect on the direction of Kinetics Small i.e., Kinetics Small and Enhanced go up and down completely randomly.

Pair Corralation between Kinetics Small and Enhanced

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 2.18 times more return on investment than Enhanced. However, Kinetics Small is 2.18 times more volatile than Enhanced Large Pany. It trades about 0.11 of its potential returns per unit of risk. Enhanced Large Pany is currently generating about 0.04 per unit of risk. If you would invest  13,299  in Kinetics Small Cap on October 4, 2024 and sell it today you would earn a total of  4,099  from holding Kinetics Small Cap or generate 30.82% return on investment over 90 days.

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

Kinetics Small Cap  vs.  Enhanced Large Pany

Kinetics Small Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Enhanced Large Pany

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Enhanced Large Pany are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kinetics Small and Enhanced

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

The idea behind Kinetics Small Cap and Enhanced Large Pany 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.