Correlation Between Small-cap Value and Short Real

Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Short Real 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 Real 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 Real Estate, you can compare the effects of market volatilities on Small-cap Value and Short Real 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 Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Short Real.

Diversification Opportunities for Small-cap Value and Short Real

0.18

Correlation Coefficient

Small-cap Value  Short Real

Average diversification

The 3 months correlation between Small-cap and Short is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Short Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Real Estate 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 Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Real Estate has no effect on the direction of Small-cap Value i.e., Small-cap Value and Short Real go up and down completely randomly.

Pair Corralation between Small-cap Value and Short Real

Assuming the 90 days horizon Small Cap Value Profund is expected to generate 1.43 times more return on investment than Short Real. However, Small-cap Value is 1.43 times more volatile than Short Real Estate. It trades about 0.14 of its potential returns per unit of risk. Short Real Estate is currently generating about -0.04 per unit of risk. If you would invest  10,687  in Small Cap Value Profund on September 2, 2024 and sell it today you would earn a total of  1,249  from holding Small Cap Value Profund or generate 11.69% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Short Real Estate

Small Cap Value

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small-cap Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Short Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Small-cap Value and Short Real

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

The idea behind Small Cap Value Profund and Short Real Estate 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.