Correlation Between Ultrashort Mid-cap and Small-cap Value

Can any of the company-specific risk be diversified away by investing in both Ultrashort Mid-cap and Small-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 Ultrashort Mid-cap and Small-cap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Ultrashort Mid-cap and Small-cap Value

-0.94

Correlation Coefficient

Ultrashort Mid-cap  Small-cap Value

Pay attention - limited upside

The 3 months correlation between Ultrashort and Small-cap is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Ultrashort Mid Cap Profund and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Ultrashort Mid-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 Ultrashort Mid Cap Profund are associated (or correlated) with Small-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 Small Cap Value has no effect on the direction of Ultrashort Mid-cap i.e., Ultrashort Mid-cap and Small-cap Value go up and down completely randomly.

Pair Corralation between Ultrashort Mid-cap and Small-cap Value

Assuming the 90 days horizon Ultrashort Mid Cap Profund is expected to generate 1.65 times more return on investment than Small-cap Value. However, Ultrashort Mid-cap is 1.65 times more volatile than Small Cap Value Profund. It trades about 0.01 of its potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.01 per unit of risk. If you would invest  2,701  in Ultrashort Mid Cap Profund on December 5, 2024 and sell it today you would lose (6.00) from holding Ultrashort Mid Cap Profund or give up 0.22% of portfolio value over 90 days.

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

Ultrashort Mid Cap Profund  vs.  Small Cap Value Profund

Ultrashort Mid Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Mid Cap Profund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrashort Mid-cap showed solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Ultrashort Mid-cap and Small-cap Value

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

The idea behind Ultrashort Mid Cap Profund and Small 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.