Correlation Between The Growth and The Midcap

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

Diversification Opportunities for The Growth and The Midcap

0.95

Correlation Coefficient

The Growth  The Midcap

Almost no diversification

The 3 months correlation between The and The is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding The Growth 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 Growth 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 Growth 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 Growth i.e., The Growth and The Midcap go up and down completely randomly.

Pair Corralation between The Growth and The Midcap

Assuming the 90 days horizon The Growth Fund is expected to under-perform the The Midcap. In addition to that, The Growth is 1.05 times more volatile than The Midcap Growth. It trades about -0.13 of its total potential returns per unit of risk. The Midcap Growth is currently generating about -0.08 per unit of volatility. If you would invest  4,434  in The Midcap Growth on December 29, 2024 and sell it today you would lose (259.00) from holding The Midcap Growth or give up 5.84% of portfolio value over 90 days.

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

The Growth Fund  vs.  The Midcap Growth

Growth Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Growth Fund 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.

Midcap Growth

Risk-Adjusted Performance

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 fairly strong technical and fundamental indicators, The Midcap 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 Growth and The Midcap

The main advantage of trading using opposite The Growth and The Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The Growth 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 Growth 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 Transaction History module to view history of all your transactions and understand their impact on performance.