Correlation Between Small-cap Value and Short Nasdaq

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

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

Diversification Opportunities for Small-cap Value and Short Nasdaq

-0.59

Correlation Coefficient

Small-cap Value  Short Nasdaq

Excellent diversification

The 3 months correlation between Small-cap and Short is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Short Nasdaq 100 Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Nasdaq 100 and Small-cap Value 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 Value Profund are associated (or correlated) with Short Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Nasdaq 100 has no effect on the direction of Small-cap Value i.e., Small-cap Value and Short Nasdaq go up and down completely randomly.

Pair Corralation between Small-cap Value and Short Nasdaq

Assuming the 90 days horizon Small Cap Value Profund is expected to generate 1.1 times more return on investment than Short Nasdaq. However, Small-cap Value is 1.1 times more volatile than Short Nasdaq 100 Profund. It trades about 0.02 of its potential returns per unit of risk. Short Nasdaq 100 Profund is currently generating about -0.1 per unit of risk. If you would invest  10,133  in Small Cap Value Profund on October 4, 2024 and sell it today you would earn a total of  880.00  from holding Small Cap Value Profund or generate 8.68% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Short Nasdaq 100 Profund

Small Cap Value

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Small-cap Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Nasdaq 100 Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Small-cap Value and Short Nasdaq

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

The idea behind Small Cap Value Profund and Short Nasdaq 100 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.