Correlation Between Small Cap and Nasdaq-100 Profund

Can any of the company-specific risk be diversified away by investing in both Small Cap and Nasdaq-100 Profund 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 Nasdaq-100 Profund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Growth Profund and Nasdaq 100 Profund Nasdaq 100, you can compare the effects of market volatilities on Small Cap and Nasdaq-100 Profund 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 Nasdaq-100 Profund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Nasdaq-100 Profund.

Diversification Opportunities for Small Cap and Nasdaq-100 Profund

0.23

Correlation Coefficient

Small Cap  Nasdaq-100 Profund

Modest diversification

The 3 months correlation between Small and Nasdaq-100 is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth Profund and Nasdaq 100 Profund Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Profund 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 Growth Profund are associated (or correlated) with Nasdaq-100 Profund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Profund has no effect on the direction of Small Cap i.e., Small Cap and Nasdaq-100 Profund go up and down completely randomly.

Pair Corralation between Small Cap and Nasdaq-100 Profund

Assuming the 90 days horizon Small Cap Growth Profund is expected to under-perform the Nasdaq-100 Profund. In addition to that, Small Cap is 1.0 times more volatile than Nasdaq 100 Profund Nasdaq 100. It trades about -0.17 of its total potential returns per unit of risk. Nasdaq 100 Profund Nasdaq 100 is currently generating about 0.04 per unit of volatility. If you would invest  4,469  in Nasdaq 100 Profund Nasdaq 100 on October 7, 2024 and sell it today you would earn a total of  76.00  from holding Nasdaq 100 Profund Nasdaq 100 or generate 1.7% 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 Growth Profund  vs.  Nasdaq 100 Profund Nasdaq 100

Small Cap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Growth Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nasdaq 100 Profund

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 Profund Nasdaq 100 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Nasdaq-100 Profund may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Small Cap and Nasdaq-100 Profund

The main advantage of trading using opposite Small Cap and Nasdaq-100 Profund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Nasdaq-100 Profund 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 Nasdaq-100 Profund will offset losses from the drop in Nasdaq-100 Profund's long position.

The idea behind Small Cap Growth Profund and Nasdaq 100 Profund Nasdaq 100 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.