Correlation Between Profunds Large and Short Small-cap

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

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

Diversification Opportunities for Profunds Large and Short Small-cap

-0.89

Correlation Coefficient

Profunds Large  Short Small-cap

Pay attention - limited upside

The 3 months correlation between Profunds and Short is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Large Cap Growth and Short Small Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Small Cap and Profunds Large 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 Profunds Large Cap Growth are associated (or correlated) with Short Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Small Cap has no effect on the direction of Profunds Large i.e., Profunds Large and Short Small-cap go up and down completely randomly.

Pair Corralation between Profunds Large and Short Small-cap

Assuming the 90 days horizon Profunds Large Cap Growth is expected to under-perform the Short Small-cap. In addition to that, Profunds Large is 1.18 times more volatile than Short Small Cap Profund. It trades about -0.08 of its total potential returns per unit of risk. Short Small Cap Profund is currently generating about 0.13 per unit of volatility. If you would invest  4,843  in Short Small Cap Profund on January 24, 2025 and sell it today you would earn a total of  780.00  from holding Short Small Cap Profund or generate 16.11% return on investment over 90 days.

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

Profunds Large Cap Growth  vs.  Short Small Cap Profund

Profunds Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Profunds Large Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Short Small Cap

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Small Cap Profund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Short Small-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Profunds Large and Short Small-cap

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

The idea behind Profunds Large Cap Growth and Short Small Cap 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.