Correlation Between Kinetics Small and Special Opportunities

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

Diversification Opportunities for Kinetics Small and Special Opportunities

0.26

Correlation Coefficient

Kinetics Small  Special Opportunities

Modest diversification

The 3 months correlation between Kinetics and Special is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Special Opportunities Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Special Opportunities 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 Special Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Special Opportunities has no effect on the direction of Kinetics Small i.e., Kinetics Small and Special Opportunities go up and down completely randomly.

Pair Corralation between Kinetics Small and Special Opportunities

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 2.85 times more return on investment than Special Opportunities. However, Kinetics Small is 2.85 times more volatile than Special Opportunities Closed. It trades about 0.15 of its potential returns per unit of risk. Special Opportunities Closed is currently generating about 0.21 per unit of risk. If you would invest  18,066  in Kinetics Small Cap on December 2, 2024 and sell it today you would earn a total of  1,876  from holding Kinetics Small Cap or generate 10.38% return on investment over 90 days.

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

Kinetics Small Cap  vs.  Special Opportunities Closed

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.

Special Opportunities

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Special Opportunities Closed are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather sound basic indicators, Special Opportunities is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kinetics Small and Special Opportunities

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

The idea behind Kinetics Small Cap and Special Opportunities Closed 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.