Correlation Between Kinetics Small and Large Cap

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

Diversification Opportunities for Kinetics Small and Large Cap

0.36

Correlation Coefficient

Kinetics Small  Large Cap

Weak diversification

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

Pair Corralation between Kinetics Small and Large Cap

Assuming the 90 days horizon Kinetics Small Cap is expected to generate 2.23 times more return on investment than Large Cap. However, Kinetics Small is 2.23 times more volatile than Large Cap E. It trades about 0.07 of its potential returns per unit of risk. Large Cap E is currently generating about -0.07 per unit of risk. If you would invest  15,232  in Kinetics Small Cap on December 29, 2024 and sell it today you would earn a total of  1,270  from holding Kinetics Small Cap or generate 8.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Kinetics Small Cap  vs.  Large Cap E

Kinetics Small Cap

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Kinetics Small may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Large Cap E

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Kinetics Small Cap and Large Cap E 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.