Investors with a high risk tolerance may want to take a look at the small cap ASX shares in this article.

That's because they have just been named as buys and tipped to rise materially from current levels.

Here's what analysts are saying about these small caps in January:

Paradigm Biopharmaceuticals Ltd (ASX: PAR)

The first small cap ASX share for investors to look at is Paradigm Biopharmaceuticals.

It is a biotechnology company that is focused on repurposing Pentosan Polysulfate Sodium (PPS) for the treatment of osteoarthritis (OA) in the knee.

The team at Bell Potter believes the company would have a lucrative market opportunity if it is approved. IT notes that the "global market for a safe, effective treatment that provides superior patient outcomes compared to the standard of care is a multiple blockbuster." The broker adds:

In the US along the incidence of moderate to severe osteoarthritis is estimated at 30m persons. The pricing of the drug will ultimately be determined by the economic benefit associated with its use as well as the cost of other therapies. The conservative estimate is US$2,500 per year which places the addressable market in the tens of billions of US$.

Bell Potter has a speculative buy rating and 80 cents price target on its shares last week. Based on its current share price of 46.5 cents, this implies potential upside of approximately 72% for investors over the next 12 months.

Readytech Holdings Ltd (ASX: RDY)

Another small cap ASX share that could be a buy according to analysts is Readytech.

Readytech is a software as a service (SaaS) provider of mission critical software to the tertiary education, government, justice, and enterprise markets.

The team at Morgans believes that the company would be a great option for investors right now due to its strong earnings growth outlook and attractive valuation. It explains:

Its products include student management, payroll and HR solutions, and enterprise resource planning (ERP) to local government and legal case management. RDY's recent organic growth trajectory demonstrates its ability to deliver our forecast 14.5% CAGR EBITDA growth over coming years.

Despite this, the company is trading at a ~20% discount to its historic average EBITDA multiple of ~11x, which we believe represents compelling value.

Morgans has an add rating and $3.74 price target on its shares. This implies potential upside of 19% for investors over the next 12 months.