Correlation Between Materials Portfolio and Mid Cap

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Can any of the company-specific risk be diversified away by investing in both Materials Portfolio 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 Materials Portfolio and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Portfolio Fidelity and Mid Cap Growth, you can compare the effects of market volatilities on Materials Portfolio 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 Materials Portfolio with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Mid Cap.

Diversification Opportunities for Materials Portfolio and Mid Cap

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between Materials and Mid is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth and Materials Portfolio 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 Materials Portfolio Fidelity 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 Growth has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Mid Cap go up and down completely randomly.

Pair Corralation between Materials Portfolio and Mid Cap

Assuming the 90 days horizon Materials Portfolio is expected to generate 29.98 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Materials Portfolio Fidelity is 1.78 times less risky than Mid Cap. It trades about 0.01 of its potential returns per unit of risk. Mid Cap Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,574  in Mid Cap Growth on September 20, 2024 and sell it today you would earn a total of  705.00  from holding Mid Cap Growth or generate 44.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Materials Portfolio Fidelity  vs.  Mid Cap Growth

 Performance 
       Timeline  
Materials Portfolio 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Mid Cap Growth 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Materials Portfolio and Mid Cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Materials Portfolio and Mid Cap

The main advantage of trading using opposite Materials Portfolio and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio 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 Materials Portfolio Fidelity and Mid Cap 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.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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