Correlation Between MidCap Financial and National Grid

Can any of the company-specific risk be diversified away by investing in both MidCap Financial and National Grid 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 National Grid 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 National Grid plc, you can compare the effects of market volatilities on MidCap Financial and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidCap Financial and National Grid.

Diversification Opportunities for MidCap Financial and National Grid

-0.37

Correlation Coefficient

MidCap Financial  National Grid

Very good diversification

The 3 months correlation between MidCap and National is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid plc 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of MidCap Financial i.e., MidCap Financial and National Grid go up and down completely randomly.

Pair Corralation between MidCap Financial and National Grid

Assuming the 90 days trading horizon MidCap Financial is expected to generate 1.34 times less return on investment than National Grid. But when comparing it to its historical volatility, MidCap Financial Investment is 1.38 times less risky than National Grid. It trades about 0.05 of its potential returns per unit of risk. National Grid plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,700  in National Grid plc on October 8, 2024 and sell it today you would earn a total of  50.00  from holding National Grid plc or generate 0.88% return on investment over 90 days.

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

MidCap Financial Investment  vs.  National Grid plc

MidCap Financial Inv

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

National Grid plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, National Grid is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MidCap Financial and National Grid

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

The idea behind MidCap Financial Investment and National Grid plc 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.