Correlation Between Small Cap and Pharmaceuticals Ultrasector

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

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

Diversification Opportunities for Small Cap and Pharmaceuticals Ultrasector

0.79

Correlation Coefficient

Small Cap  Pharmaceuticals Ultrasector

Poor diversification

The 3 months correlation between Small and Pharmaceuticals is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Fund and Pharmaceuticals Ultrasector Pr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharmaceuticals Ultrasector and Small 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 Small Cap Value Fund are associated (or correlated) with Pharmaceuticals Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharmaceuticals Ultrasector has no effect on the direction of Small Cap i.e., Small Cap and Pharmaceuticals Ultrasector go up and down completely randomly.

Pair Corralation between Small Cap and Pharmaceuticals Ultrasector

Assuming the 90 days horizon Small Cap is expected to generate 2.04 times less return on investment than Pharmaceuticals Ultrasector. But when comparing it to its historical volatility, Small Cap Value Fund is 1.33 times less risky than Pharmaceuticals Ultrasector. It trades about 0.16 of its potential returns per unit of risk. Pharmaceuticals Ultrasector Profund is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,172  in Pharmaceuticals Ultrasector Profund on May 25, 2025 and sell it today you would earn a total of  575.00  from holding Pharmaceuticals Ultrasector Profund or generate 26.47% return on investment over 90 days.

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

Small Cap Value Fund  vs.  Pharmaceuticals Ultrasector Pr

Small Cap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pharmaceuticals Ultrasector

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pharmaceuticals Ultrasector Profund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Pharmaceuticals Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Pharmaceuticals Ultrasector

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

The idea behind Small Cap Value Fund and Pharmaceuticals Ultrasector 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.