Correlation Between Small Cap and Alpine Ultra

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

By analyzing existing cross correlation between Small Cap Equity and Alpine Ultra Short, you can compare the effects of market volatilities on Small Cap and Alpine Ultra 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 Alpine Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Alpine Ultra.

Diversification Opportunities for Small Cap and Alpine Ultra

0.82

Correlation Coefficient

Small Cap  Alpine Ultra

Very poor diversification

The 3 months correlation between Small and Alpine is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Equity and Alpine Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpine Ultra Short 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 Equity are associated (or correlated) with Alpine Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpine Ultra Short has no effect on the direction of Small Cap i.e., Small Cap and Alpine Ultra go up and down completely randomly.

Pair Corralation between Small Cap and Alpine Ultra

Assuming the 90 days horizon Small Cap Equity is expected to generate 18.54 times more return on investment than Alpine Ultra. However, Small Cap is 18.54 times more volatile than Alpine Ultra Short. It trades about 0.15 of its potential returns per unit of risk. Alpine Ultra Short is currently generating about 0.22 per unit of risk. If you would invest  1,650  in Small Cap Equity on May 21, 2025 and sell it today you would earn a total of  150.00  from holding Small Cap Equity or generate 9.09% return on investment over 90 days.

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

Small Cap Equity  vs.  Alpine Ultra Short

Small Cap Equity

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Equity 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.

Alpine Ultra Short

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alpine Ultra Short are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Alpine Ultra is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Alpine Ultra

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

The idea behind Small Cap Equity and Alpine Ultra Short 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.