Correlation Between Small Cap and Short Precious

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

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

Diversification Opportunities for Small Cap and Short Precious

-0.57

Correlation Coefficient

Small Cap  Short Precious

Excellent diversification

The 3 months correlation between Small and Short is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Short Precious Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Precious Metals 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 Profund are associated (or correlated) with Short Precious. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Precious Metals has no effect on the direction of Small Cap i.e., Small Cap and Short Precious go up and down completely randomly.

Pair Corralation between Small Cap and Short Precious

Assuming the 90 days horizon Small Cap Value Profund is expected to generate 0.57 times more return on investment than Short Precious. However, Small Cap Value Profund is 1.75 times less risky than Short Precious. It trades about 0.16 of its potential returns per unit of risk. Short Precious Metals is currently generating about -0.08 per unit of risk. If you would invest  9,292  in Small Cap Value Profund on April 28, 2025 and sell it today you would earn a total of  1,215  from holding Small Cap Value Profund or generate 13.08% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Short Precious Metals

Small Cap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Short Precious Metals

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Small Cap and Short Precious

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

The idea behind Small Cap Value Profund and Short Precious Metals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.