Correlation Between The Bond and The Midcap

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

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

Diversification Opportunities for The Bond and The Midcap

-0.7

Correlation Coefficient

The Bond  The Midcap

Excellent diversification

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

Pair Corralation between The Bond and The Midcap

Assuming the 90 days horizon The Bond Fund is expected to under-perform the The Midcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, The Bond Fund is 2.71 times less risky than The Midcap. The mutual fund trades about -0.05 of its potential returns per unit of risk. The The Midcap Growth is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,626  in The Midcap Growth on August 31, 2024 and sell it today you would earn a total of  527.00  from holding The Midcap Growth or generate 11.39% return on investment over 90 days.

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

The Bond Fund  vs.  The Midcap Growth

Bond Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Midcap Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Midcap Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, The Midcap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with The Bond and The Midcap

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

The idea behind The Bond Fund and The Midcap Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.