Correlation Between Paradigm Micro and Perritt Ultra

Can any of the company-specific risk be diversified away by investing in both Paradigm Micro and Perritt Ultra 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 Paradigm Micro and Perritt Ultra into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Paradigm Micro Cap Fund and Perritt Ultra Microcap, you can compare the effects of market volatilities on Paradigm Micro and Perritt Ultra 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 Paradigm Micro with a short position of Perritt Ultra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paradigm Micro and Perritt Ultra.

Diversification Opportunities for Paradigm Micro and Perritt Ultra

0.68

Correlation Coefficient

Paradigm Micro  Perritt Ultra

Poor diversification

The 3 months correlation between Paradigm and Perritt is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Paradigm Micro Cap Fund and Perritt Ultra Microcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perritt Ultra Microcap and Paradigm Micro 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 Paradigm Micro Cap Fund are associated (or correlated) with Perritt Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perritt Ultra Microcap has no effect on the direction of Paradigm Micro i.e., Paradigm Micro and Perritt Ultra go up and down completely randomly.

Pair Corralation between Paradigm Micro and Perritt Ultra

Assuming the 90 days horizon Paradigm Micro Cap Fund is expected to generate 1.48 times more return on investment than Perritt Ultra. However, Paradigm Micro is 1.48 times more volatile than Perritt Ultra Microcap. It trades about 0.04 of its potential returns per unit of risk. Perritt Ultra Microcap is currently generating about 0.02 per unit of risk. If you would invest  3,964  in Paradigm Micro Cap Fund on January 31, 2024 and sell it today you would earn a total of  1,253  from holding Paradigm Micro Cap Fund or generate 31.61% return on investment over 90 days.

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

Paradigm Micro Cap Fund  vs.  Perritt Ultra Microcap

Paradigm Micro Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paradigm Micro Cap Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Paradigm Micro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Perritt Ultra Microcap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Perritt Ultra Microcap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Perritt Ultra may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Paradigm Micro and Perritt Ultra

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

The idea behind Paradigm Micro Cap Fund and Perritt Ultra Microcap 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.