Correlation Between MidCap Financial and Global Crossing

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

By analyzing existing cross correlation between MidCap Financial Investment and Global Crossing Airlines, you can compare the effects of market volatilities on MidCap Financial and Global Crossing 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 MidCap Financial with a short position of Global Crossing. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidCap Financial and Global Crossing.

Diversification Opportunities for MidCap Financial and Global Crossing

0.5

Correlation Coefficient

MidCap Financial  Global Crossing

Very weak diversification

The 3 months correlation between MidCap and Global is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Global Crossing Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Crossing Airlines and MidCap Financial 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 MidCap Financial Investment are associated (or correlated) with Global Crossing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Crossing Airlines has no effect on the direction of MidCap Financial i.e., MidCap Financial and Global Crossing go up and down completely randomly.

Pair Corralation between MidCap Financial and Global Crossing

Assuming the 90 days horizon MidCap Financial is expected to generate 74.52 times less return on investment than Global Crossing. But when comparing it to its historical volatility, MidCap Financial Investment is 24.59 times less risky than Global Crossing. It trades about 0.12 of its potential returns per unit of risk. Global Crossing Airlines is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  50.00  in Global Crossing Airlines on November 23, 2024 and sell it today you would earn a total of  25.00  from holding Global Crossing Airlines or generate 50.0% return on investment over 90 days.

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

MidCap Financial Investment  vs.  Global Crossing Airlines

MidCap Financial Inv

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, MidCap Financial is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Global Crossing Airlines

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Crossing Airlines are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Global Crossing reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MidCap Financial and Global Crossing

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

The idea behind MidCap Financial Investment and Global Crossing Airlines 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.