Correlation Between Wasatch Small and Kinetics Small

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

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

Diversification Opportunities for Wasatch Small and Kinetics Small

0.8

Correlation Coefficient

Wasatch Small  Kinetics Small

Very poor diversification

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

Pair Corralation between Wasatch Small and Kinetics Small

Assuming the 90 days horizon Wasatch Small Cap is expected to generate 0.45 times more return on investment than Kinetics Small. However, Wasatch Small Cap is 2.22 times less risky than Kinetics Small. It trades about 0.08 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about -0.02 per unit of risk. If you would invest  4,131  in Wasatch Small Cap on October 6, 2024 and sell it today you would earn a total of  177.00  from holding Wasatch Small Cap or generate 4.28% return on investment over 90 days.

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

Wasatch Small Cap  vs.  Kinetics Small Cap

Wasatch Small Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wasatch Small Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Wasatch Small may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Kinetics Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetics Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Kinetics Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wasatch Small and Kinetics Small

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

The idea behind Wasatch Small Cap and Kinetics Small Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.