Correlation Between Small-cap Value and Consumer Services

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

Diversification Opportunities for Small-cap Value and Consumer Services

0.92

Correlation Coefficient

Small-cap Value  Consumer Services

Almost no diversification

The 3 months correlation between Small-cap and Consumer is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Consumer Services Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Services and Small-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 Small Cap Value Profund are associated (or correlated) with Consumer Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Services has no effect on the direction of Small-cap Value i.e., Small-cap Value and Consumer Services go up and down completely randomly.

Pair Corralation between Small-cap Value and Consumer Services

Assuming the 90 days horizon Small-cap Value is expected to generate 1.42 times less return on investment than Consumer Services. But when comparing it to its historical volatility, Small Cap Value Profund is 1.39 times less risky than Consumer Services. It trades about 0.18 of its potential returns per unit of risk. Consumer Services Ultrasector is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,773  in Consumer Services Ultrasector on April 25, 2025 and sell it today you would earn a total of  1,008  from holding Consumer Services Ultrasector or generate 21.12% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Consumer Services Ultrasector

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 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small-cap Value showed solid returns over the last few months and may actually be approaching a breakup point.

Consumer Services

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Services Ultrasector are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Consumer Services showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small-cap Value and Consumer Services

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

The idea behind Small Cap Value Profund and Consumer Services Ultrasector 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.