Correlation Between James Small and Madison Mid

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

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

Diversification Opportunities for James Small and Madison Mid

0.88

Correlation Coefficient

James Small  Madison Mid

Very poor diversification

The 3 months correlation between James and Madison is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding James Small Cap and Madison Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Mid Cap and James Small 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 James Small Cap are associated (or correlated) with Madison Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Mid Cap has no effect on the direction of James Small i.e., James Small and Madison Mid go up and down completely randomly.

Pair Corralation between James Small and Madison Mid

Assuming the 90 days horizon James Small Cap is expected to generate 0.86 times more return on investment than Madison Mid. However, James Small Cap is 1.16 times less risky than Madison Mid. It trades about -0.05 of its potential returns per unit of risk. Madison Mid Cap is currently generating about -0.15 per unit of risk. If you would invest  3,848  in James Small Cap on December 21, 2024 and sell it today you would lose (126.00) from holding James Small Cap or give up 3.27% of portfolio value over 90 days.

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

James Small Cap  vs.  Madison Mid Cap

James Small Cap

Risk-Adjusted Performance

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.

Madison Mid Cap

Risk-Adjusted Performance

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with James Small and Madison Mid

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

The idea behind James Small Cap and Madison 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.