Correlation Between Small Cap and Futuretech

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

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

Diversification Opportunities for Small Cap and Futuretech

0.23

Correlation Coefficient

Small Cap  Futuretech

Modest diversification

The 3 months correlation between Small and Futuretech is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Futuretech II Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futuretech II Acquisition and Small 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 Small Cap Premium are associated (or correlated) with Futuretech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futuretech II Acquisition has no effect on the direction of Small Cap i.e., Small Cap and Futuretech go up and down completely randomly.

Pair Corralation between Small Cap and Futuretech

Considering the 90-day investment horizon Small Cap is expected to generate 3.72 times less return on investment than Futuretech. But when comparing it to its historical volatility, Small Cap Premium is 3.77 times less risky than Futuretech. It trades about 0.06 of its potential returns per unit of risk. Futuretech II Acquisition is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,123  in Futuretech II Acquisition on October 25, 2024 and sell it today you would earn a total of  75.90  from holding Futuretech II Acquisition or generate 6.76% return on investment over 90 days.

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

Small Cap Premium  vs.  Futuretech II Acquisition

Small Cap Premium

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Futuretech II Acquisition

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Futuretech II Acquisition are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward indicators, Futuretech may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Small Cap and Futuretech

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

The idea behind Small Cap Premium and Futuretech II Acquisition 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.