Correlation Between Short Small-cap and Industrials Ultrasector

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

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

Diversification Opportunities for Short Small-cap and Industrials Ultrasector

-0.85

Correlation Coefficient

Short Small-cap  Industrials Ultrasector

Pay attention - limited upside

The 3 months correlation between Short and Industrials is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Short Small Cap Profund and Industrials Ultrasector Profun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrials Ultrasector and Short 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 Short Small Cap Profund are associated (or correlated) with Industrials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrials Ultrasector has no effect on the direction of Short Small-cap i.e., Short Small-cap and Industrials Ultrasector go up and down completely randomly.

Pair Corralation between Short Small-cap and Industrials Ultrasector

Assuming the 90 days horizon Short Small Cap Profund is expected to generate 0.98 times more return on investment than Industrials Ultrasector. However, Short Small Cap Profund is 1.02 times less risky than Industrials Ultrasector. It trades about 0.3 of its potential returns per unit of risk. Industrials Ultrasector Profund is currently generating about -0.13 per unit of risk. If you would invest  5,347  in Short Small Cap Profund on December 4, 2024 and sell it today you would earn a total of  400.00  from holding Short Small Cap Profund or generate 7.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Short Small Cap Profund  vs.  Industrials Ultrasector Profun

Short Small Cap

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Small Cap Profund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Short Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Industrials Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Industrials Ultrasector Profund 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 Short Small-cap and Industrials Ultrasector

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

The idea behind Short Small Cap Profund and Industrials Ultrasector Profund 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.