Correlation Between Kinetics Small and Capital World

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

Diversification Opportunities for Kinetics Small and Capital World

0.41

Correlation Coefficient

Kinetics Small  Capital World

Very weak diversification

The 3 months correlation between Kinetics and Capital is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Kinetics Small Cap and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Kinetics Small i.e., Kinetics Small and Capital World go up and down completely randomly.

Pair Corralation between Kinetics Small and Capital World

Assuming the 90 days horizon Kinetics Small Cap is expected to under-perform the Capital World. In addition to that, Kinetics Small is 1.36 times more volatile than Capital World Growth. It trades about -0.19 of its total potential returns per unit of risk. Capital World Growth is currently generating about -0.22 per unit of volatility. If you would invest  6,963  in Capital World Growth on October 9, 2024 and sell it today you would lose (532.00) from holding Capital World Growth or give up 7.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Kinetics Small Cap  vs.  Capital World Growth

Kinetics Small Cap

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 7 (%) 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.

Capital World Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital World Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Capital World

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

The idea behind Kinetics Small Cap and Capital World Growth 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.