Correlation Between Small-cap Value and Rising Dollar

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

Diversification Opportunities for Small-cap Value and Rising Dollar

0.87

Correlation Coefficient

Small-cap Value  Rising Dollar

Very poor diversification

The 3 months correlation between Small-cap and Rising is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Rising Dollar Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rising Dollar Profund 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 Rising Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rising Dollar Profund has no effect on the direction of Small-cap Value i.e., Small-cap Value and Rising Dollar go up and down completely randomly.

Pair Corralation between Small-cap Value and Rising Dollar

Assuming the 90 days horizon Small Cap Value Profund is expected to under-perform the Rising Dollar. In addition to that, Small-cap Value is 2.43 times more volatile than Rising Dollar Profund. It trades about -0.15 of its total potential returns per unit of risk. Rising Dollar Profund is currently generating about -0.11 per unit of volatility. If you would invest  2,668  in Rising Dollar Profund on December 30, 2024 and sell it today you would lose (85.00) from holding Rising Dollar Profund or give up 3.19% of portfolio value over 90 days.

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

Small Cap Value Profund  vs.  Rising Dollar Profund

Small Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Value Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Rising Dollar Profund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rising Dollar Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Rising Dollar 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 Rising Dollar

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

The idea behind Small Cap Value Profund and Rising Dollar 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.