Correlation Between Smallcap Fund and Preferred Securities

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

By analyzing existing cross correlation between Smallcap Fund Fka and Preferred Securities Fund, you can compare the effects of market volatilities on Smallcap Fund and Preferred Securities 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 Smallcap Fund with a short position of Preferred Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Fund and Preferred Securities.

Diversification Opportunities for Smallcap Fund and Preferred Securities

0.93

Correlation Coefficient

Smallcap Fund  Preferred Securities

Almost no diversification

The 3 months correlation between Smallcap and Preferred is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Fund Fka and Preferred Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Securities and Smallcap Fund 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 Smallcap Fund Fka are associated (or correlated) with Preferred Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Securities has no effect on the direction of Smallcap Fund i.e., Smallcap Fund and Preferred Securities go up and down completely randomly.

Pair Corralation between Smallcap Fund and Preferred Securities

Assuming the 90 days horizon Smallcap Fund Fka is expected to generate 8.06 times more return on investment than Preferred Securities. However, Smallcap Fund is 8.06 times more volatile than Preferred Securities Fund. It trades about 0.25 of its potential returns per unit of risk. Preferred Securities Fund is currently generating about 0.3 per unit of risk. If you would invest  2,422  in Smallcap Fund Fka on June 5, 2025 and sell it today you would earn a total of  351.00  from holding Smallcap Fund Fka or generate 14.49% return on investment over 90 days.

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

Smallcap Fund Fka  vs.  Preferred Securities Fund

Smallcap Fund Fka

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Fund Fka are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Smallcap Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Preferred Securities

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Securities Fund are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Preferred Securities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smallcap Fund and Preferred Securities

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

The idea behind Smallcap Fund Fka and Preferred Securities Fund 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 Commodity Directory module to find actively traded commodities issued by global exchanges.