Correlation Between Tidal Trust and Small Cap

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

By analyzing existing cross correlation between Tidal Trust II and Small Cap Stock, you can compare the effects of market volatilities on Tidal Trust and Small Cap 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 Tidal Trust with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tidal Trust and Small Cap.

Diversification Opportunities for Tidal Trust and Small Cap

0.9

Correlation Coefficient

Tidal Trust  Small Cap

Almost no diversification

The 3 months correlation between Tidal and Small is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Tidal Trust II and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock and Tidal Trust 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 Tidal Trust II are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Tidal Trust i.e., Tidal Trust and Small Cap go up and down completely randomly.

Pair Corralation between Tidal Trust and Small Cap

Given the investment horizon of 90 days Tidal Trust II is expected to generate 0.99 times more return on investment than Small Cap. However, Tidal Trust II is 1.01 times less risky than Small Cap. It trades about 0.18 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.11 per unit of risk. If you would invest  521.00  in Tidal Trust II on May 18, 2025 and sell it today you would earn a total of  69.00  from holding Tidal Trust II or generate 13.24% return on investment over 90 days.

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

Tidal Trust II  vs.  Small Cap Stock

Tidal Trust II

Risk-Adjusted Performance

Good

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

Small Cap Stock

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Tidal Trust and Small Cap

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

The idea behind Tidal Trust II and Small Cap Stock 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.