Correlation Between MidCap Financial and Global Fashion

Can any of the company-specific risk be diversified away by investing in both MidCap Financial and Global Fashion 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 MidCap Financial and Global Fashion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MidCap Financial Investment and Global Fashion Group, you can compare the effects of market volatilities on MidCap Financial and Global Fashion 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 MidCap Financial with a short position of Global Fashion. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidCap Financial and Global Fashion.

Diversification Opportunities for MidCap Financial and Global Fashion

-0.3

Correlation Coefficient

MidCap Financial  Global Fashion

Very good diversification

The 3 months correlation between MidCap and Global is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Global Fashion Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Fashion Group and MidCap Financial 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 MidCap Financial Investment are associated (or correlated) with Global Fashion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Fashion Group has no effect on the direction of MidCap Financial i.e., MidCap Financial and Global Fashion go up and down completely randomly.

Pair Corralation between MidCap Financial and Global Fashion

Assuming the 90 days trading horizon MidCap Financial Investment is expected to under-perform the Global Fashion. But the stock apears to be less risky and, when comparing its historical volatility, MidCap Financial Investment is 3.57 times less risky than Global Fashion. The stock trades about -0.13 of its potential returns per unit of risk. The Global Fashion Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Global Fashion Group on October 10, 2024 and sell it today you would earn a total of  2.00  from holding Global Fashion Group or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

MidCap Financial Investment  vs.  Global Fashion Group

MidCap Financial Inv

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Global Fashion Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Fashion Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Global Fashion unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MidCap Financial and Global Fashion

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

The idea behind MidCap Financial Investment and Global Fashion Group 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.