Correlation Between Small-cap Value and Mobile Telecommunicatio

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

Diversification Opportunities for Small-cap Value and Mobile Telecommunicatio

0.86

Correlation Coefficient

Small-cap Value  Mobile Telecommunicatio

Very poor diversification

The 3 months correlation between Small-cap and Mobile is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Mobile Telecommunications Ultr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mobile Telecommunicatio 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 Mobile Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mobile Telecommunicatio has no effect on the direction of Small-cap Value i.e., Small-cap Value and Mobile Telecommunicatio go up and down completely randomly.

Pair Corralation between Small-cap Value and Mobile Telecommunicatio

Assuming the 90 days horizon Small-cap Value is expected to generate 4.1 times less return on investment than Mobile Telecommunicatio. But when comparing it to its historical volatility, Small Cap Value Profund is 1.28 times less risky than Mobile Telecommunicatio. It trades about 0.04 of its potential returns per unit of risk. Mobile Telecommunications Ultrasector is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,501  in Mobile Telecommunications Ultrasector on August 30, 2024 and sell it today you would earn a total of  2,262  from holding Mobile Telecommunications Ultrasector or generate 150.7% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Mobile Telecommunications Ultr

Small Cap Value

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small-cap Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Mobile Telecommunicatio

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mobile Telecommunications Ultrasector are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mobile Telecommunicatio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small-cap Value and Mobile Telecommunicatio

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

The idea behind Small Cap Value Profund and Mobile Telecommunications Ultrasector 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.