Correlation Between Ultrasmall Cap and Emerging Markets

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

By analyzing existing cross correlation between Ultrasmall Cap Profund Ultrasmall Cap and Emerging Markets Portfolio, you can compare the effects of market volatilities on Ultrasmall Cap and Emerging Markets 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 Ultrasmall Cap with a short position of Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultrasmall Cap and Emerging Markets.

Diversification Opportunities for Ultrasmall Cap and Emerging Markets

0.59

Correlation Coefficient

Ultrasmall Cap  Emerging Markets

Very weak diversification

The 3 months correlation between Ultrasmall and Emerging is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ultrasmall Cap Profund Ultrasm and Emerging Markets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Por and Ultrasmall 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 Ultrasmall Cap Profund Ultrasmall Cap are associated (or correlated) with Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Por has no effect on the direction of Ultrasmall Cap i.e., Ultrasmall Cap and Emerging Markets go up and down completely randomly.

Pair Corralation between Ultrasmall Cap and Emerging Markets

Assuming the 90 days horizon Ultrasmall Cap Profund Ultrasmall Cap is expected to generate 2.99 times more return on investment than Emerging Markets. However, Ultrasmall Cap is 2.99 times more volatile than Emerging Markets Portfolio. It trades about 0.2 of its potential returns per unit of risk. Emerging Markets Portfolio is currently generating about 0.26 per unit of risk. If you would invest  4,961  in Ultrasmall Cap Profund Ultrasmall Cap on April 30, 2025 and sell it today you would earn a total of  1,471  from holding Ultrasmall Cap Profund Ultrasmall Cap or generate 29.65% return on investment over 90 days.

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

Ultrasmall Cap Profund Ultrasm  vs.  Emerging Markets Portfolio

Ultrasmall Cap Profund

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrasmall Cap Profund Ultrasmall Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultrasmall Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Emerging Markets Por

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Portfolio are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Emerging Markets showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ultrasmall Cap and Emerging Markets

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

The idea behind Ultrasmall Cap Profund Ultrasmall Cap and Emerging Markets Portfolio 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.