Correlation Between Mid Cap and Advantage Portfolio

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

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

Diversification Opportunities for Mid Cap and Advantage Portfolio

0.98

Correlation Coefficient

Mid Cap  Advantage Portfolio

Almost no diversification

The 3 months correlation between Mid and Advantage is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Advantage Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantage Portfolio Class and Mid 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 Mid Cap Growth are associated (or correlated) with Advantage Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantage Portfolio Class has no effect on the direction of Mid Cap i.e., Mid Cap and Advantage Portfolio go up and down completely randomly.

Pair Corralation between Mid Cap and Advantage Portfolio

Assuming the 90 days horizon Mid Cap Growth is expected to generate 1.2 times more return on investment than Advantage Portfolio. However, Mid Cap is 1.2 times more volatile than Advantage Portfolio Class. It trades about 0.09 of its potential returns per unit of risk. Advantage Portfolio Class is currently generating about 0.1 per unit of risk. If you would invest  1,006  in Mid Cap Growth on September 26, 2024 and sell it today you would earn a total of  1,302  from holding Mid Cap Growth or generate 129.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.8%
Values	Daily Returns

Mid Cap Growth  vs.  Advantage Portfolio Class

Mid Cap Growth

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Advantage Portfolio Class

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advantage Portfolio Class are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Advantage Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mid Cap and Advantage Portfolio

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

The idea behind Mid Cap Growth and Advantage Portfolio Class 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.