Correlation Between Small Cap and Ultralatin America
Can any of the company-specific risk be diversified away by investing in both Small Cap and Ultralatin America 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 and Ultralatin America 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 Ultralatin America Profund, you can compare the effects of market volatilities on Small Cap and Ultralatin America 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 with a short position of Ultralatin America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Ultralatin America.
Diversification Opportunities for Small Cap and Ultralatin America
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Small and Ultralatin is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Ultralatin America Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultralatin America and 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 Small Cap Value Profund are associated (or correlated) with Ultralatin America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultralatin America has no effect on the direction of Small Cap i.e., Small Cap and Ultralatin America go up and down completely randomly.
Pair Corralation between Small Cap and Ultralatin America
Assuming the 90 days horizon Small Cap Value Profund is expected to generate 0.34 times more return on investment than Ultralatin America. However, Small Cap Value Profund is 2.92 times less risky than Ultralatin America. It trades about -0.36 of its potential returns per unit of risk. Ultralatin America Profund is currently generating about -0.22 per unit of risk. If you would invest 12,026 in Small Cap Value Profund on September 25, 2024 and sell it today you would lose (903.00) from holding Small Cap Value Profund or give up 7.51% of portfolio value 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. Ultralatin America Profund
Performance |
Timeline |
Small Cap Value |
Ultralatin America |
Small Cap and Ultralatin America Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Ultralatin America
The main advantage of trading using opposite Small Cap and Ultralatin America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Ultralatin America 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 Ultralatin America will offset losses from the drop in Ultralatin America's long position.Small Cap vs. Real Estate Ultrasector | Small Cap vs. Short Real Estate | Small Cap vs. Ultrashort Mid Cap Profund | Small Cap vs. Ultrashort Mid Cap Profund |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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