Correlation Between Large Cap and Kinetics Small

Can any of the company-specific risk be diversified away by investing in both Large Cap and Kinetics Small 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 Large Cap and Kinetics Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Large Cap Growth Profund and Kinetics Small Cap, you can compare the effects of market volatilities on Large Cap and Kinetics Small 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 Large Cap with a short position of Kinetics Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Kinetics Small.

Diversification Opportunities for Large Cap and Kinetics Small

0.76

Correlation Coefficient

Large Cap  Kinetics Small

Poor diversification

The 3 months correlation between Large and Kinetics is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap and Large Cap 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 Large Cap Growth Profund are associated (or correlated) with Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Large Cap i.e., Large Cap and Kinetics Small go up and down completely randomly.

Pair Corralation between Large Cap and Kinetics Small

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.65 times more return on investment than Kinetics Small. However, Large Cap Growth Profund is 1.55 times less risky than Kinetics Small. It trades about 0.12 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.05 per unit of risk. If you would invest  2,708  in Large Cap Growth Profund on September 15, 2024 and sell it today you would earn a total of  1,961  from holding Large Cap Growth Profund or generate 72.42% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Kinetics Small Cap

Large Cap Growth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Kinetics Small Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 13 (%) 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.

Pair Trading with Large Cap and Kinetics Small

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

The idea behind Large Cap Growth Profund and Kinetics Small Cap 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.