Correlation Between Paradigm Micro-cap and Zacks Small-cap

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

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

Diversification Opportunities for Paradigm Micro-cap and Zacks Small-cap

0.74

Correlation Coefficient

Paradigm Micro-cap  Zacks Small-cap

Poor diversification

The 3 months correlation between Paradigm and Zacks is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Paradigm Micro Cap Fund and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small Cap and Paradigm Micro-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 Paradigm Micro Cap Fund are associated (or correlated) with Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of Paradigm Micro-cap i.e., Paradigm Micro-cap and Zacks Small-cap go up and down completely randomly.

Pair Corralation between Paradigm Micro-cap and Zacks Small-cap

Assuming the 90 days horizon Paradigm Micro Cap Fund is expected to generate 0.75 times more return on investment than Zacks Small-cap. However, Paradigm Micro Cap Fund is 1.33 times less risky than Zacks Small-cap. It trades about -0.15 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about -0.19 per unit of risk. If you would invest  6,081  in Paradigm Micro Cap Fund on December 2, 2024 and sell it today you would lose (901.00) from holding Paradigm Micro Cap Fund or give up 14.82% of portfolio value over 90 days.

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

Paradigm Micro Cap Fund  vs.  Zacks Small Cap E

Paradigm Micro Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Paradigm Micro Cap 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.

Zacks Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zacks Small Cap E 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 forward 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.

Pair Trading with Paradigm Micro-cap and Zacks Small-cap

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

The idea behind Paradigm Micro Cap Fund and Zacks Small 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .