Correlation Between Ultrasmall Cap and Small Cap

Can any of the company-specific risk be diversified away by investing in both Ultrasmall Cap and Small Cap 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 and Small Cap 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 Small Cap Core, you can compare the effects of market volatilities on Ultrasmall Cap and Small Cap 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 with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultrasmall Cap and Small Cap.

Diversification Opportunities for Ultrasmall Cap and Small Cap

0.71

Correlation Coefficient

Ultrasmall Cap  Small Cap

Poor diversification

The 3 months correlation between Ultrasmall and Small is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Ultrasmall Cap Profund Ultrasm and Small Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Core and Ultrasmall 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 Ultrasmall Cap Profund Ultrasmall Cap are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Core has no effect on the direction of Ultrasmall Cap i.e., Ultrasmall Cap and Small Cap go up and down completely randomly.

Pair Corralation between Ultrasmall Cap and Small Cap

Assuming the 90 days horizon Ultrasmall Cap Profund Ultrasmall Cap is expected to generate 1.9 times more return on investment than Small Cap. However, Ultrasmall Cap is 1.9 times more volatile than Small Cap Core. It trades about 0.09 of its potential returns per unit of risk. Small Cap Core is currently generating about 0.14 per unit of risk. If you would invest  6,731  in Ultrasmall Cap Profund Ultrasmall Cap on October 22, 2024 and sell it today you would earn a total of  202.00  from holding Ultrasmall Cap Profund Ultrasmall Cap or generate 3.0% return on investment over 90 days.

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

Ultrasmall Cap Profund Ultrasm  vs.  Small Cap Core

Ultrasmall Cap Profund

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrasmall Cap Profund Ultrasmall Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultrasmall Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Cap Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Core 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.

Pair Trading with Ultrasmall Cap and Small Cap

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

The idea behind Ultrasmall Cap Profund Ultrasmall Cap and Small Cap Core 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.