Correlation Between Ultrasmall-cap Profund and Smallcap World

Can any of the company-specific risk be diversified away by investing in both Ultrasmall-cap Profund and Smallcap World 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 Ultrasmall-cap Profund and Smallcap World into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Ultrasmall-cap Profund and Smallcap World

0.8

Correlation Coefficient

Ultrasmall-cap Profund  Smallcap World

Very poor diversification

The 3 months correlation between Ultrasmall-cap and Smallcap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ultrasmall Cap Profund Ultrasm and Smallcap World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap World and Ultrasmall-cap Profund 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 Ultrasmall Cap Profund Ultrasmall Cap are associated (or correlated) with Smallcap World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap World has no effect on the direction of Ultrasmall-cap Profund i.e., Ultrasmall-cap Profund and Smallcap World go up and down completely randomly.

Pair Corralation between Ultrasmall-cap Profund and Smallcap World

Assuming the 90 days horizon Ultrasmall Cap Profund Ultrasmall Cap is expected to generate 2.85 times more return on investment than Smallcap World. However, Ultrasmall-cap Profund is 2.85 times more volatile than Smallcap World Fund. It trades about 0.03 of its potential returns per unit of risk. Smallcap World Fund is currently generating about 0.04 per unit of risk. If you would invest  5,419  in Ultrasmall Cap Profund Ultrasmall Cap on October 10, 2024 and sell it today you would earn a total of  1,372  from holding Ultrasmall Cap Profund Ultrasmall Cap or generate 25.32% return on investment over 90 days.

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

Ultrasmall Cap Profund Ultrasm  vs.  Smallcap World Fund

Ultrasmall Cap Profund

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrasmall Cap Profund Ultrasmall Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultrasmall-cap Profund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Smallcap World

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultrasmall-cap Profund and Smallcap World

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

The idea behind Ultrasmall Cap Profund Ultrasmall Cap and Smallcap World Fund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.