Correlation Between Far East and MidCap Financial

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

By analyzing existing cross correlation between Far East Horizon and MidCap Financial Investment, you can compare the effects of market volatilities on Far East and MidCap Financial 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 Far East with a short position of MidCap Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far East and MidCap Financial.

Diversification Opportunities for Far East and MidCap Financial

-0.18

Correlation Coefficient

Far East  MidCap Financial

Good diversification

The 3 months correlation between Far and MidCap is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Far East Horizon and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv and Far East 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 Far East Horizon are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of Far East i.e., Far East and MidCap Financial go up and down completely randomly.

Pair Corralation between Far East and MidCap Financial

Assuming the 90 days horizon Far East Horizon is expected to generate 2.59 times more return on investment than MidCap Financial. However, Far East is 2.59 times more volatile than MidCap Financial Investment. It trades about 0.08 of its potential returns per unit of risk. MidCap Financial Investment is currently generating about -0.08 per unit of risk. If you would invest  63.00  in Far East Horizon on December 21, 2024 and sell it today you would earn a total of  8.00  from holding Far East Horizon or generate 12.7% return on investment over 90 days.

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

Far East Horizon  vs.  MidCap Financial Investment

Far East Horizon

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Far East Horizon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Far East reported solid returns over the last few months and may actually be approaching a breakup point.

MidCap Financial Inv

Risk-Adjusted Performance

Very Weak

Over the last 90 days MidCap Financial Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, MidCap Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Far East and MidCap Financial

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

The idea behind Far East Horizon and MidCap Financial Investment 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.