Correlation Between BCAP SET100 and BCAP Mid

Can any of the company-specific risk be diversified away by investing in both BCAP SET100 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 SET100 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 SET100 and BCAP Mid Small, you can compare the effects of market volatilities on BCAP SET100 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 SET100 with a short position of BCAP Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCAP SET100 and BCAP Mid.

Diversification Opportunities for BCAP SET100 and BCAP Mid

0.46

Correlation Coefficient

BCAP SET100  BCAP Mid

Very weak diversification

The 3 months correlation between BCAP and BCAP is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding BCAP SET100 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 SET100 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 SET100 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 SET100 i.e., BCAP SET100 and BCAP Mid go up and down completely randomly.

Pair Corralation between BCAP SET100 and BCAP Mid

Assuming the 90 days trading horizon BCAP SET100 is expected to generate 2.0 times less return on investment than BCAP Mid. But when comparing it to its historical volatility, BCAP SET100 is 1.41 times less risky than BCAP Mid. It trades about 0.04 of its potential returns per unit of risk. BCAP Mid Small is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,122  in BCAP Mid Small on September 22, 2024 and sell it today you would lose (265.00) from holding BCAP Mid Small or give up 23.62% of portfolio value over 90 days.

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

BCAP SET100  vs.  BCAP Mid Small

BCAP SET100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCAP SET100 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BCAP SET100 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 SET100 and BCAP Mid

The main advantage of trading using opposite BCAP SET100 and BCAP Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCAP SET100 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 SET100 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.

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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.