Correlation Between Mid Cap and Global Gold

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

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

Diversification Opportunities for Mid Cap and Global Gold

0.23

Correlation Coefficient

Mid Cap  Global Gold

Modest diversification

The 3 months correlation between Mid and Global is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and Global Gold Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Gold Fund and Mid Cap 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 Mid Cap Value are associated (or correlated) with Global Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Gold Fund has no effect on the direction of Mid Cap i.e., Mid Cap and Global Gold go up and down completely randomly.

Pair Corralation between Mid Cap and Global Gold

Assuming the 90 days horizon Mid Cap Value is expected to under-perform the Global Gold. But the mutual fund apears to be less risky and, when comparing its historical volatility, Mid Cap Value is 1.04 times less risky than Global Gold. The mutual fund trades about -0.37 of its potential returns per unit of risk. The Global Gold Fund is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  1,324  in Global Gold Fund on September 25, 2024 and sell it today you would lose (97.00) from holding Global Gold Fund or give up 7.33% of portfolio value over 90 days.

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

Mid Cap Value  vs.  Global Gold Fund

Mid Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Global Gold Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Gold Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Mid Cap and Global Gold

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

The idea behind Mid Cap Value and Global Gold Fund 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.