Correlation Between BCAP MSCI and BCAP Mid

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

By analyzing existing cross correlation between BCAP MSCI Thailand and BCAP Mid Small, you can compare the effects of market volatilities on BCAP MSCI and BCAP Mid 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 BCAP MSCI with a short position of BCAP Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCAP MSCI and BCAP Mid.

Diversification Opportunities for BCAP MSCI and BCAP Mid

0.7

Correlation Coefficient

BCAP MSCI  BCAP Mid

Poor diversification

The 3 months correlation between BCAP and BCAP is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding BCAP MSCI Thailand and BCAP Mid Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCAP Mid Small and BCAP MSCI 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 BCAP MSCI Thailand are associated (or correlated) with BCAP Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCAP Mid Small has no effect on the direction of BCAP MSCI i.e., BCAP MSCI and BCAP Mid go up and down completely randomly.

Pair Corralation between BCAP MSCI and BCAP Mid

Assuming the 90 days trading horizon BCAP MSCI Thailand is expected to under-perform the BCAP Mid. In addition to that, BCAP MSCI is 1.04 times more volatile than BCAP Mid Small. It trades about -0.5 of its total potential returns per unit of risk. BCAP Mid Small is currently generating about -0.39 per unit of volatility. If you would invest  908.00  in BCAP Mid Small on September 23, 2024 and sell it today you would lose (51.00) from holding BCAP Mid Small or give up 5.62% of portfolio value over 90 days.

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

BCAP MSCI Thailand  vs.  BCAP Mid Small

BCAP MSCI Thailand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCAP MSCI Thailand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Etf's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

BCAP Mid Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCAP Mid Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Etf's fundamental drivers remain somewhat 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 ETF investors.

Pair Trading with BCAP MSCI and BCAP Mid

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

The idea behind BCAP MSCI Thailand and BCAP Mid Small 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.