Correlation Between The Midcap and The Short

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

By analyzing existing cross correlation between The Midcap Growth and The Short Term, you can compare the effects of market volatilities on The Midcap and The Short 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 The Midcap with a short position of The Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of The Midcap and The Short.

Diversification Opportunities for The Midcap and The Short

0.03

Correlation Coefficient

The Midcap  The Short

Significant diversification

The 3 months correlation between THE and The is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding The Midcap Growth and The Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term and The Midcap 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 The Midcap Growth are associated (or correlated) with The Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term has no effect on the direction of The Midcap i.e., The Midcap and The Short go up and down completely randomly.

Pair Corralation between The Midcap and The Short

Assuming the 90 days horizon The Midcap Growth is expected to under-perform the The Short. In addition to that, The Midcap is 11.53 times more volatile than The Short Term. It trades about -0.21 of its total potential returns per unit of risk. The Short Term is currently generating about -0.23 per unit of volatility. If you would invest  1,603  in The Short Term on October 14, 2024 and sell it today you would lose (7.00) from holding The Short Term or give up 0.44% of portfolio value over 90 days.

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

The Midcap Growth  vs.  The Short Term

Midcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Short Term

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with The Midcap and The Short

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

The idea behind The Midcap Growth and The Short Term 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.