Correlation Between Mid-cap Value and Short Small-cap

Can any of the company-specific risk be diversified away by investing in both Mid-cap Value 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 Mid-cap Value 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 Mid Cap Value Profund and Short Small Cap Profund, you can compare the effects of market volatilities on Mid-cap Value 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 Mid-cap Value with a short position of Short Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid-cap Value and Short Small-cap.

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

-0.99

Correlation Coefficient

Mid-cap Value  Short Small-cap

Pay attention - limited upside

The 3 months correlation between Mid-cap and Short is -0.99. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value Profund 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 Mid-cap Value 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 Mid Cap Value Profund 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 Mid-cap Value i.e., Mid-cap Value and Short Small-cap go up and down completely randomly.

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

Assuming the 90 days horizon Mid Cap Value Profund is expected to under-perform the Short Small-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Mid Cap Value Profund is 1.06 times less risky than Short Small-cap. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Short Small Cap Profund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,820  in Short Small Cap Profund on January 20, 2025 and sell it today you would earn a total of  1,039  from holding Short Small Cap Profund or generate 21.56% return on investment over 90 days.

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

Mid Cap Value Profund  vs.  Short Small Cap Profund

Mid Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid 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 forward indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Short Small Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Small Cap Profund are ranked lower than 13 (%) 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 Mid-cap Value and Short Small-cap

The main advantage of trading using opposite Mid-cap Value and Short Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid-cap Value 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 Mid Cap Value Profund 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.