Correlation Between Short Real and Small Cap

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

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

Diversification Opportunities for Short Real and Small Cap

0.3

Correlation Coefficient

Short Real  Small Cap

Weak diversification

The 3 months correlation between Short and Small is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Short Real Estate and Small Cap Profund Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Profund and Short Real 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 Real Estate are associated (or correlated) with 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 Small Cap Profund has no effect on the direction of Short Real i.e., Short Real and Small Cap go up and down completely randomly.

Pair Corralation between Short Real and Small Cap

Assuming the 90 days horizon Short Real Estate is expected to generate 0.73 times more return on investment than Small Cap. However, Short Real Estate is 1.37 times less risky than Small Cap. It trades about 0.05 of its potential returns per unit of risk. Small Cap Profund Small Cap is currently generating about 0.02 per unit of risk. If you would invest  808.00  in Short Real Estate on September 15, 2024 and sell it today you would earn a total of  6.00  from holding Short Real Estate or generate 0.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Short Real Estate  vs.  Small Cap Profund Small Cap

Short Real Estate

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Real Estate are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Short Real may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Small Cap Profund

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Profund Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Short Real and Small Cap

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

The idea behind Short Real Estate and Small Cap Profund 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.