Correlation Between Kinetics Small and Small Cap

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

Diversification Opportunities for Kinetics Small and Small Cap

0.54

Correlation Coefficient

Kinetics Small  Small Cap

Very weak diversification

The 3 months correlation between Kinetics and Small is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Kinetics Small i.e., Kinetics Small and Small Cap go up and down completely randomly.

Pair Corralation between Kinetics Small and Small Cap

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 0.96 times more return on investment than Small Cap. However, Kinetics Small Cap is 1.04 times less risky than Small Cap. It trades about -0.35 of its potential returns per unit of risk. Small Cap Core is currently generating about -0.36 per unit of risk. If you would invest  22,497  in Kinetics Small Cap on September 27, 2024 and sell it today you would lose (3,976) from holding Kinetics Small Cap or give up 17.67% of portfolio value over 90 days.

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

Kinetics Small Cap  vs.  Small Cap Core

Kinetics Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core 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.

Pair Trading with Kinetics Small and Small Cap

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

The idea behind Kinetics Small Cap and Small Cap Core 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.