Correlation Between International Equity and Kinetics Small

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

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

Diversification Opportunities for International Equity and Kinetics Small

0.33

Correlation Coefficient

International Equity  Kinetics Small

Weak diversification

The 3 months correlation between International and Kinetics is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap and International Equity 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 International Equity Portfolio are associated (or correlated) with Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of International Equity i.e., International Equity and Kinetics Small go up and down completely randomly.

Pair Corralation between International Equity and Kinetics Small

Assuming the 90 days horizon International Equity Portfolio is expected to generate 0.4 times more return on investment than Kinetics Small. However, International Equity Portfolio is 2.5 times less risky than Kinetics Small. It trades about 0.23 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about 0.06 per unit of risk. If you would invest  1,145  in International Equity Portfolio on December 25, 2024 and sell it today you would earn a total of  138.00  from holding International Equity Portfolio or generate 12.05% return on investment over 90 days.

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

International Equity Portfolio  vs.  Kinetics Small Cap

International Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Equity Portfolio are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, International Equity may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Kinetics Small Cap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with International Equity and Kinetics Small

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

The idea behind International Equity Portfolio and Kinetics Small Cap 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.