Correlation Between Consumer Services and Mid Cap

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

By analyzing existing cross correlation between Consumer Services Ultrasector and Mid Cap Profund Mid Cap, you can compare the effects of market volatilities on Consumer Services and Mid Cap 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 Consumer Services with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Services and Mid Cap.

Diversification Opportunities for Consumer Services and Mid Cap

0.89

Correlation Coefficient

Consumer Services  Mid Cap

Very poor diversification

The 3 months correlation between Consumer and Mid is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Services Ultrasector and Mid Cap Profund Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Profund and Consumer Services 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 Consumer Services Ultrasector are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Profund has no effect on the direction of Consumer Services i.e., Consumer Services and Mid Cap go up and down completely randomly.

Pair Corralation between Consumer Services and Mid Cap

Assuming the 90 days horizon Consumer Services Ultrasector is expected to generate 1.71 times more return on investment than Mid Cap. However, Consumer Services is 1.71 times more volatile than Mid Cap Profund Mid Cap. It trades about 0.29 of its potential returns per unit of risk. Mid Cap Profund Mid Cap is currently generating about 0.14 per unit of risk. If you would invest  5,976  in Consumer Services Ultrasector on September 14, 2024 and sell it today you would earn a total of  1,999  from holding Consumer Services Ultrasector or generate 33.45% return on investment over 90 days.

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

Consumer Services Ultrasector  vs.  Mid Cap Profund Mid Cap

Consumer Services

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Services Ultrasector are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Consumer Services showed solid returns over the last few months and may actually be approaching a breakup point.

Mid Cap Profund

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Profund Mid Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Consumer Services and Mid Cap

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

The idea behind Consumer Services Ultrasector and Mid Cap Profund Mid Cap 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.