Correlation Between Smallcap Fund and Inverse Sp

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

By analyzing existing cross correlation between Smallcap Fund Fka and Inverse Sp 500, you can compare the effects of market volatilities on Smallcap Fund and Inverse Sp 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 Fund with a short position of Inverse Sp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Fund and Inverse Sp.

Diversification Opportunities for Smallcap Fund and Inverse Sp

-0.79

Correlation Coefficient

Smallcap Fund  Inverse Sp

Pay attention - limited upside

The 3 months correlation between Smallcap and Inverse is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Inverse Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Sp 500 and Smallcap Fund 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 Fund Fka are associated (or correlated) with Inverse Sp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Sp 500 has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Inverse Sp go up and down completely randomly.

Pair Corralation between Smallcap Fund and Inverse Sp

Assuming the 90 days horizon Smallcap Fund Fka is expected to under-perform the Inverse Sp. But the mutual fund apears to be less risky and, when comparing its historical volatility, Smallcap Fund Fka is 1.64 times less risky than Inverse Sp. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Inverse Sp 500 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,550  in Inverse Sp 500 on December 21, 2024 and sell it today you would earn a total of  1,213  from holding Inverse Sp 500 or generate 11.5% return on investment over 90 days.

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

Smallcap Fund Fka  vs.  Inverse Sp 500

Smallcap Fund Fka

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smallcap Fund Fka has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Inverse Sp 500

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Sp 500 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Sp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smallcap Fund and Inverse Sp

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

The idea behind Smallcap Fund Fka and Inverse Sp 500 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.