Correlation Between Perkins Select and Thompson Midcap

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

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

Diversification Opportunities for Perkins Select and Thompson Midcap

0.87

Correlation Coefficient

Perkins Select  Thompson Midcap

Very poor diversification

The 3 months correlation between Perkins and Thompson is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Perkins Select Value and Thompson Midcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thompson Midcap and Perkins Select 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 Perkins Select Value are associated (or correlated) with Thompson Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thompson Midcap has no effect on the direction of Perkins Select i.e., Perkins Select and Thompson Midcap go up and down completely randomly.

Pair Corralation between Perkins Select and Thompson Midcap

Assuming the 90 days horizon Perkins Select Value is expected to under-perform the Thompson Midcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Perkins Select Value is 1.01 times less risky than Thompson Midcap. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Thompson Midcap Fund is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,338  in Thompson Midcap Fund on December 30, 2024 and sell it today you would lose (45.00) from holding Thompson Midcap Fund or give up 3.36% of portfolio value over 90 days.

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

Perkins Select Value  vs.  Thompson Midcap Fund

Perkins Select Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Perkins Select Value 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.

Thompson Midcap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Perkins Select and Thompson Midcap

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

The idea behind Perkins Select Value and Thompson Midcap Fund 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.