Correlation Between Smallcap Growth and Kinetics Small

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

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

Diversification Opportunities for Smallcap Growth and Kinetics Small

0.36

Correlation Coefficient

Smallcap Growth  Kinetics Small

Weak diversification

The 3 months correlation between Smallcap and Kinetics is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth Fund 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 Smallcap Growth 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 Smallcap Growth Fund 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 Smallcap Growth i.e., Smallcap Growth and Kinetics Small go up and down completely randomly.

Pair Corralation between Smallcap Growth and Kinetics Small

Assuming the 90 days horizon Smallcap Growth Fund is expected to under-perform the Kinetics Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Smallcap Growth Fund is 1.4 times less risky than Kinetics Small. The mutual fund trades about -0.19 of its potential returns per unit of risk. The Kinetics Small Cap is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  22,100  in Kinetics Small Cap on December 3, 2024 and sell it today you would lose (2,158) from holding Kinetics Small Cap or give up 9.76% of portfolio value over 90 days.

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

Smallcap Growth Fund  vs.  Kinetics Small Cap

Smallcap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

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.

Pair Trading with Smallcap Growth and Kinetics Small

The main advantage of trading using opposite Smallcap Growth and Kinetics Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth 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 Smallcap Growth Fund 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.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.