Correlation Between Financial Services and Kinetics Small
Can any of the company-specific risk be diversified away by investing in both Financial Services and Kinetics Small 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 Financial Services and Kinetics Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Services Fund and Kinetics Small Cap, you can compare the effects of market volatilities on Financial Services and Kinetics Small 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 Financial Services with a short position of Kinetics Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Kinetics Small.
Diversification Opportunities for Financial Services and Kinetics Small
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financial and Kinetics is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Kinetics Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetics Small Cap and Financial Services 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 Financial Services Fund are associated (or correlated) with Kinetics Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetics Small Cap has no effect on the direction of Financial Services i.e., Financial Services and Kinetics Small go up and down completely randomly.
Pair Corralation between Financial Services and Kinetics Small
Assuming the 90 days horizon Financial Services Fund is expected to generate 0.18 times more return on investment than Kinetics Small. However, Financial Services Fund is 5.56 times less risky than Kinetics Small. It trades about -0.04 of its potential returns per unit of risk. Kinetics Small Cap is currently generating about -0.12 per unit of risk. If you would invest 8,756 in Financial Services Fund on September 13, 2024 and sell it today you would lose (43.00) from holding Financial Services Fund or give up 0.49% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Fund vs. Kinetics Small Cap
Performance |
| Timeline |
| Financial Services |
| Kinetics Small Cap |
Financial Services and Kinetics Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Kinetics Small
The main advantage of trading using opposite Financial Services and Kinetics Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services position performs unexpectedly, Kinetics Small 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 Kinetics Small will offset losses from the drop in Kinetics Small's long position.| Financial Services vs. Health Care Fund | Financial Services vs. Banking Fund Investor | Financial Services vs. Technology Fund Investor | Financial Services vs. Transportation Fund Investor |
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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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