Correlation Between Small Cap and Ultrashort Mid

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

Diversification Opportunities for Small Cap and Ultrashort Mid

-0.97

Correlation Coefficient

Small Cap  Ultrashort Mid

Pay attention - limited upside

The 3 months correlation between Small and Ultrashort is -0.97. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Ultrashort Mid Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Mid Cap 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 Ultrashort Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Mid Cap has no effect on the direction of Small Cap i.e., Small Cap and Ultrashort Mid go up and down completely randomly.

Pair Corralation between Small Cap and Ultrashort Mid

Assuming the 90 days horizon Small Cap Value Profund is expected to generate 0.66 times more return on investment than Ultrashort Mid. However, Small Cap Value Profund is 1.52 times less risky than Ultrashort Mid. It trades about 0.15 of its potential returns per unit of risk. Ultrashort Mid Cap Profund is currently generating about -0.19 per unit of risk. If you would invest  7,266  in Small Cap Value Profund on April 29, 2025 and sell it today you would earn a total of  882.00  from holding Small Cap Value Profund or generate 12.14% return on investment over 90 days.

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

Small Cap Value Profund  vs.  Ultrashort Mid Cap Profund

Small Cap Value

Risk-Adjusted Performance

Good

Over the last 90 days Small Cap Value Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Ultrashort Mid Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Small Cap and Ultrashort Mid

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

The idea behind Small Cap Value Profund and Ultrashort Mid 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.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.