Correlation Between World Energy and Mid Cap

Can any of the company-specific risk be diversified away by investing in both World Energy and Mid Cap 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 World Energy and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between World Energy Fund and Mid Cap Value Profund, you can compare the effects of market volatilities on World Energy and Mid Cap 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 World Energy with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Mid Cap.

Diversification Opportunities for World Energy and Mid Cap

0.8

Correlation Coefficient

World Energy  Mid Cap

Very poor diversification

The 3 months correlation between World and Mid is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Mid Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and World Energy 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 World Energy Fund are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of World Energy i.e., World Energy and Mid Cap go up and down completely randomly.

Pair Corralation between World Energy and Mid Cap

Assuming the 90 days horizon World Energy Fund is expected to generate 1.79 times more return on investment than Mid Cap. However, World Energy is 1.79 times more volatile than Mid Cap Value Profund. It trades about 0.01 of its potential returns per unit of risk. Mid Cap Value Profund is currently generating about -0.03 per unit of risk. If you would invest  1,411  in World Energy Fund on December 19, 2024 and sell it today you would lose (3.00) from holding World Energy Fund or give up 0.21% of portfolio value over 90 days.

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

World Energy Fund  vs.  Mid Cap Value Profund

World Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days World Energy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, World Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid Cap Value Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with World Energy and Mid Cap

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

The idea behind World Energy Fund and Mid Cap Value Profund 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.