Correlation Between MidCap Financial and Western Acquisition

Can any of the company-specific risk be diversified away by investing in both MidCap Financial and Western Acquisition 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 Western Acquisition 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 Western Acquisition Ventures, you can compare the effects of market volatilities on MidCap Financial and Western Acquisition 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 Western Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidCap Financial and Western Acquisition.

Diversification Opportunities for MidCap Financial and Western Acquisition

-0.08

Correlation Coefficient

MidCap Financial  Western Acquisition

Good diversification

The 3 months correlation between MidCap and Western is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Western Acquisition Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Acquisition 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 Western Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Acquisition has no effect on the direction of MidCap Financial i.e., MidCap Financial and Western Acquisition go up and down completely randomly.

Pair Corralation between MidCap Financial and Western Acquisition

Assuming the 90 days horizon MidCap Financial is expected to generate 1.86 times less return on investment than Western Acquisition. But when comparing it to its historical volatility, MidCap Financial Investment is 6.37 times less risky than Western Acquisition. It trades about 0.1 of its potential returns per unit of risk. Western Acquisition Ventures is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,054  in Western Acquisition Ventures on September 13, 2024 and sell it today you would earn a total of  27.00  from holding Western Acquisition Ventures or generate 2.56% return on investment over 90 days.

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

MidCap Financial Investment  vs.  Western Acquisition Ventures

MidCap Financial Inv

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 8 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Western Acquisition

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Acquisition Ventures are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MidCap Financial and Western Acquisition

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

The idea behind MidCap Financial Investment and Western Acquisition Ventures 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.