Correlation Between Profunds-large Cap and Small-cap Growth
Can any of the company-specific risk be diversified away by investing in both Profunds-large Cap and Small-cap Growth 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 Profunds-large Cap and Small-cap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Profunds Large Cap Growth and Small Cap Growth Profund, you can compare the effects of market volatilities on Profunds-large Cap and Small-cap Growth 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 Profunds-large Cap with a short position of Small-cap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Profunds-large Cap and Small-cap Growth.
Diversification Opportunities for Profunds-large Cap and Small-cap Growth
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Profunds-large and SMALL-CAP is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Large Cap Growth and Small Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth and Profunds-large 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 Profunds Large Cap Growth are associated (or correlated) with Small-cap Growth. 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 Growth has no effect on the direction of Profunds-large Cap i.e., Profunds-large Cap and Small-cap Growth go up and down completely randomly.
Pair Corralation between Profunds-large Cap and Small-cap Growth
Assuming the 90 days horizon Profunds-large Cap is expected to generate 1.67 times less return on investment than Small-cap Growth. But when comparing it to its historical volatility, Profunds Large Cap Growth is 1.39 times less risky than Small-cap Growth. It trades about 0.09 of its potential returns per unit of risk. Small Cap Growth Profund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 11,511 in Small Cap Growth Profund on August 30, 2024 and sell it today you would earn a total of 746.00 from holding Small Cap Growth Profund or generate 6.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Profunds Large Cap Growth vs. Small Cap Growth Profund
Performance |
| Timeline |
| Profunds Large Cap |
| Small Cap Growth |
Profunds-large Cap and Small-cap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Profunds-large Cap and Small-cap Growth
The main advantage of trading using opposite Profunds-large Cap and Small-cap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Profunds-large Cap position performs unexpectedly, Small-cap Growth 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 Growth will offset losses from the drop in Small-cap Growth's long position.The idea behind Profunds Large Cap Growth and Small Cap Growth 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.
| Small-cap Growth vs. Small Cap Value Profund | Small-cap Growth vs. Mid Cap Growth Profund | Small-cap Growth vs. Mid Cap Value Profund | Small-cap Growth vs. Small Cap Profund Small Cap |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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