Correlation Between Arrow Managed and Midcap Growth

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

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

Diversification Opportunities for Arrow Managed and Midcap Growth

-0.45

Correlation Coefficient

Arrow Managed  Midcap Growth

Very good diversification

The 3 months correlation between Arrow and Midcap is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Arrow Managed Futures and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth and Arrow Managed 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 Arrow Managed Futures are associated (or correlated) with Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Arrow Managed i.e., Arrow Managed and Midcap Growth go up and down completely randomly.

Pair Corralation between Arrow Managed and Midcap Growth

Assuming the 90 days horizon Arrow Managed is expected to generate 6.63 times less return on investment than Midcap Growth. In addition to that, Arrow Managed is 1.28 times more volatile than Midcap Growth Fund. It trades about 0.03 of its total potential returns per unit of risk. Midcap Growth Fund is currently generating about 0.26 per unit of volatility. If you would invest  785.00  in Midcap Growth Fund on October 25, 2024 and sell it today you would earn a total of  33.00  from holding Midcap Growth Fund or generate 4.2% return on investment over 90 days.

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

Arrow Managed Futures  vs.  Midcap Growth Fund

Arrow Managed Futures

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Managed Futures are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Arrow Managed may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Midcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Midcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Arrow Managed and Midcap Growth

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

The idea behind Arrow Managed Futures and Midcap Growth 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.