Correlation Between Madison Core and Madison Mid

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

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

Diversification Opportunities for Madison Core and Madison Mid

-0.37

Correlation Coefficient

Madison Core  Madison Mid

Very good diversification

The 3 months correlation between Madison and Madison is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Madison Core Bond 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 Madison Core 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 Madison Core Bond 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 Madison Core i.e., Madison Core and Madison Mid go up and down completely randomly.

Pair Corralation between Madison Core and Madison Mid

Assuming the 90 days horizon Madison Core Bond is expected to under-perform the Madison Mid. But the mutual fund apears to be less risky and, when comparing its historical volatility, Madison Core Bond is 3.0 times less risky than Madison Mid. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Madison Mid Cap is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,722  in Madison Mid Cap on September 14, 2024 and sell it today you would earn a total of  90.00  from holding Madison Mid Cap or generate 5.23% return on investment over 90 days.

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

Madison Core Bond  vs.  Madison Mid Cap

Madison Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Core Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Madison Core 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

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Mid Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Madison Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Core and Madison Mid

The main advantage of trading using opposite Madison Core and Madison Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Core 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 Madison Core Bond 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.