Correlation Between Small-cap Value and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Small-cap Value and Basic Materials 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 Basic Materials 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 Basic Materials Ultrasector, you can compare the effects of market volatilities on Small-cap Value and Basic Materials 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 Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small-cap Value and Basic Materials.
Diversification Opportunities for Small-cap Value and Basic Materials
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small-cap and Basic is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value Profund and Basic Materials Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials Ultr 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials Ultr has no effect on the direction of Small-cap Value i.e., Small-cap Value and Basic Materials go up and down completely randomly.
Pair Corralation between Small-cap Value and Basic Materials
Assuming the 90 days horizon Small Cap Value Profund is expected to generate 0.9 times more return on investment than Basic Materials. However, Small Cap Value Profund is 1.12 times less risky than Basic Materials. It trades about 0.18 of its potential returns per unit of risk. Basic Materials Ultrasector is currently generating about 0.1 per unit of risk. If you would invest 7,458 in Small Cap Value Profund on June 1, 2025 and sell it today you would earn a total of 1,103 from holding Small Cap Value Profund or generate 14.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.44% |
| Values | Daily Returns |
Small Cap Value Profund vs. Basic Materials Ultrasector
Performance |
| Timeline |
| Small Cap Value |
| Basic Materials Ultr |
Small-cap Value and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small-cap Value and Basic Materials
The main advantage of trading using opposite Small-cap Value and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Value position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Small-cap Value vs. Short Real Estate | Small-cap Value vs. Short Real Estate | Small-cap Value vs. Ultrashort Mid Cap Profund | Small-cap Value vs. Ultrashort Mid Cap Profund |
| Basic Materials vs. Heartland Value Plus | Basic Materials vs. Mutual Of America | Basic Materials vs. Queens Road Small | Basic Materials vs. Valic Company I |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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