Correlation Between MidCap Financial and Computershare

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

Diversification Opportunities for MidCap Financial and Computershare

0.92

Correlation Coefficient

MidCap Financial  Computershare

Almost no diversification

The 3 months correlation between MidCap and Computershare is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Computershare Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare Limited 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 Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare Limited has no effect on the direction of MidCap Financial i.e., MidCap Financial and Computershare go up and down completely randomly.

Pair Corralation between MidCap Financial and Computershare

Assuming the 90 days trading horizon MidCap Financial is expected to generate 3.09 times less return on investment than Computershare. But when comparing it to its historical volatility, MidCap Financial Investment is 1.7 times less risky than Computershare. It trades about 0.12 of its potential returns per unit of risk. Computershare Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Computershare Limited on October 26, 2024 and sell it today you would earn a total of  440.00  from holding Computershare Limited or generate 27.5% return on investment over 90 days.

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

MidCap Financial Investment  vs.  Computershare Limited

MidCap Financial Inv

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Computershare Limited

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Computershare reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MidCap Financial and Computershare

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

The idea behind MidCap Financial Investment and Computershare Limited 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.