Correlation Between Rational Defensive and Midcap Fund

Can any of the company-specific risk be diversified away by investing in both Rational Defensive and Midcap Fund 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 Rational Defensive and Midcap Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rational Defensive Growth and Midcap Fund R 5, you can compare the effects of market volatilities on Rational Defensive and Midcap Fund 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 Rational Defensive with a short position of Midcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Midcap Fund.

Diversification Opportunities for Rational Defensive and Midcap Fund

0.91

Correlation Coefficient

Rational Defensive  Midcap Fund

Almost no diversification

The 3 months correlation between Rational and Midcap is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Midcap Fund R 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund R and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund R has no effect on the direction of Rational Defensive i.e., Rational Defensive and Midcap Fund go up and down completely randomly.

Pair Corralation between Rational Defensive and Midcap Fund

Assuming the 90 days horizon Rational Defensive Growth is expected to under-perform the Midcap Fund. In addition to that, Rational Defensive is 1.24 times more volatile than Midcap Fund R 5. It trades about -0.1 of its total potential returns per unit of risk. Midcap Fund R 5 is currently generating about -0.02 per unit of volatility. If you would invest  4,360  in Midcap Fund R 5 on December 29, 2024 and sell it today you would lose (70.00) from holding Midcap Fund R 5 or give up 1.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Rational Defensive Growth  vs.  Midcap Fund R 5

Rational Defensive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Defensive Growth 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 Fund R

Risk-Adjusted Performance

Very Weak

Over the last 90 days Midcap Fund R 5 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Midcap Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Defensive and Midcap Fund

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

The idea behind Rational Defensive Growth and Midcap Fund R 5 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.