Correlation Between Ultrasmall Cap and Mid-cap Value

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

Diversification Opportunities for Ultrasmall Cap and Mid-cap Value

0.94

Correlation Coefficient

Ultrasmall Cap  Mid-cap Value

Almost no diversification

The 3 months correlation between Ultrasmall and Mid-cap is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Ultrasmall Cap Profund Ultrasm and Mid Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value 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 Mid-cap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Ultrasmall Cap i.e., Ultrasmall Cap and Mid-cap Value go up and down completely randomly.

Pair Corralation between Ultrasmall Cap and Mid-cap Value

Assuming the 90 days horizon Ultrasmall Cap Profund Ultrasmall Cap is expected to under-perform the Mid-cap Value. In addition to that, Ultrasmall Cap is 2.5 times more volatile than Mid Cap Value Profund. It trades about -0.11 of its total potential returns per unit of risk. Mid Cap Value Profund is currently generating about -0.06 per unit of volatility. If you would invest  8,969  in Mid Cap Value Profund on December 25, 2024 and sell it today you would lose (334.00) from holding Mid Cap Value Profund or give up 3.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

Ultrasmall Cap Profund Ultrasm  vs.  Mid Cap Value Profund

Ultrasmall Cap Profund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ultrasmall Cap Profund Ultrasmall Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Mid Cap Value

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Ultrasmall Cap Profund Ultrasmall Cap and Mid Cap Value 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.