Correlation Between Large Cap and Sp Midcap

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

By analyzing existing cross correlation between Large Cap Growth Profund and Sp Midcap Index, you can compare the effects of market volatilities on Large Cap and Sp 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 Large Cap with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Sp Midcap.

Diversification Opportunities for Large Cap and Sp Midcap

-0.47

Correlation Coefficient

Large Cap  Sp Midcap

Very good diversification

The 3 months correlation between Large and SPMIX is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Sp Midcap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap Index and Large Cap 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 Large Cap Growth Profund are associated (or correlated) with Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap Index has no effect on the direction of Large Cap i.e., Large Cap and Sp Midcap go up and down completely randomly.

Pair Corralation between Large Cap and Sp Midcap

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.71 times more return on investment than Sp Midcap. However, Large Cap Growth Profund is 1.41 times less risky than Sp Midcap. It trades about 0.1 of its potential returns per unit of risk. Sp Midcap Index is currently generating about -0.08 per unit of risk. If you would invest  4,351  in Large Cap Growth Profund on October 9, 2024 and sell it today you would earn a total of  282.00  from holding Large Cap Growth Profund or generate 6.48% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Sp Midcap Index

Large Cap Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sp Midcap Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sp Midcap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Large Cap and Sp Midcap

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

The idea behind Large Cap Growth Profund and Sp Midcap Index 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.