Correlation Between International Small and Mid Cap

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

By analyzing existing cross correlation between International Small Pany and Mid Cap 15x Strategy, you can compare the effects of market volatilities on International Small 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 International Small with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Small and Mid Cap.

Diversification Opportunities for International Small and Mid Cap

-0.52

Correlation Coefficient

International Small  Mid Cap

Excellent diversification

The 3 months correlation between International and Mid is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding International Small Pany and Mid Cap 15x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap 15x and International 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 International Small Pany 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 15x has no effect on the direction of International Small i.e., International Small and Mid Cap go up and down completely randomly.

Pair Corralation between International Small and Mid Cap

Assuming the 90 days horizon International Small Pany is expected to under-perform the Mid Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, International Small Pany is 1.91 times less risky than Mid Cap. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Mid Cap 15x Strategy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  12,483  in Mid Cap 15x Strategy on September 12, 2024 and sell it today you would earn a total of  1,883  from holding Mid Cap 15x Strategy or generate 15.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

International Small Pany  vs.  Mid Cap 15x Strategy

International Small Pany

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mid Cap 15x

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Small and Mid Cap

The main advantage of trading using opposite International Small and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Small 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 International Small Pany and Mid Cap 15x Strategy 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..