Correlation Between Kinetics Small and Smallcap Growth

Can any of the company-specific risk be diversified away by investing in both Kinetics Small and Smallcap Growth 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 Smallcap Growth 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 Smallcap Growth Fund, you can compare the effects of market volatilities on Kinetics Small and Smallcap Growth 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 Smallcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinetics Small and Smallcap Growth.

Diversification Opportunities for Kinetics Small and Smallcap Growth

0.36

Correlation Coefficient

Kinetics Small  Smallcap Growth

Weak diversification

The 3 months correlation between Kinetics and Smallcap is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Smallcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Growth 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 Smallcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Growth has no effect on the direction of Kinetics Small i.e., Kinetics Small and Smallcap Growth go up and down completely randomly.

Pair Corralation between Kinetics Small and Smallcap Growth

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 1.4 times more return on investment than Smallcap Growth. However, Kinetics Small is 1.4 times more volatile than Smallcap Growth Fund. It trades about -0.07 of its potential returns per unit of risk. Smallcap Growth Fund is currently generating about -0.19 per unit of risk. If you would invest  22,100  in Kinetics Small Cap on December 3, 2024 and sell it today you would lose (2,158) from holding Kinetics Small Cap or give up 9.76% of portfolio value over 90 days.

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

Kinetics Small Cap  vs.  Smallcap Growth Fund

Kinetics Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kinetics Small Cap 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.

Smallcap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Growth Fund 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 basic 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 Kinetics Small and Smallcap Growth

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

The idea behind Kinetics Small Cap and Smallcap Growth 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.