Correlation Between Kinetics Small and Vanguard Explorer

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

Diversification Opportunities for Kinetics Small and Vanguard Explorer

0.77

Correlation Coefficient

Kinetics Small  Vanguard Explorer

Poor diversification

The 3 months correlation between Kinetics and Vanguard is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Vanguard Explorer Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Explorer 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 Vanguard Explorer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Explorer has no effect on the direction of Kinetics Small i.e., Kinetics Small and Vanguard Explorer go up and down completely randomly.

Pair Corralation between Kinetics Small and Vanguard Explorer

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 1.4 times more return on investment than Vanguard Explorer. However, Kinetics Small is 1.4 times more volatile than Vanguard Explorer Fund. It trades about 0.06 of its potential returns per unit of risk. Vanguard Explorer Fund is currently generating about 0.04 per unit of risk. If you would invest  12,442  in Kinetics Small Cap on October 9, 2024 and sell it today you would earn a total of  6,004  from holding Kinetics Small Cap or generate 48.26% 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.  Vanguard Explorer Fund

Kinetics Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 6 (%) 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.

Vanguard Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Explorer Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Vanguard Explorer 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 Vanguard Explorer

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

The idea behind Kinetics Small Cap and Vanguard Explorer 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.