Correlation Between Madison Mid and James Small

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

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

Diversification Opportunities for Madison Mid and James Small

0.8

Correlation Coefficient

Madison Mid  James Small

Very poor diversification

The 3 months correlation between Madison and James is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Madison Mid Cap and James Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on James Small Cap and Madison Mid 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 Madison Mid Cap are associated (or correlated) with James Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of James Small Cap has no effect on the direction of Madison Mid i.e., Madison Mid and James Small go up and down completely randomly.

Pair Corralation between Madison Mid and James Small

Assuming the 90 days horizon Madison Mid Cap is expected to under-perform the James Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Madison Mid Cap is 1.17 times less risky than James Small. The mutual fund trades about -0.08 of its potential returns per unit of risk. The James Small Cap is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,062  in James Small Cap on October 8, 2024 and sell it today you would lose (171.00) from holding James Small Cap or give up 4.21% of portfolio value over 90 days.

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

Madison Mid Cap  vs.  James Small Cap

Madison Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

James Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Madison Mid and James Small

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

The idea behind Madison Mid Cap and James Small 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.