Correlation Between Mid Cap and Corporate Bond

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Corporate Bond 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 Corporate Bond 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 Corporate Bond Portfolio, you can compare the effects of market volatilities on Mid Cap and Corporate Bond 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 Corporate Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Corporate Bond.

Diversification Opportunities for Mid Cap and Corporate Bond

-0.43

Correlation Coefficient

Mid Cap  Corporate Bond

Very good diversification

The 3 months correlation between Mid and Corporate is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Corporate Bond Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Bond Portfolio 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 Corporate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Bond Portfolio has no effect on the direction of Mid Cap i.e., Mid Cap and Corporate Bond go up and down completely randomly.

Pair Corralation between Mid Cap and Corporate Bond

Assuming the 90 days horizon Mid Cap Growth is expected to generate 4.7 times more return on investment than Corporate Bond. However, Mid Cap is 4.7 times more volatile than Corporate Bond Portfolio. It trades about 0.39 of its potential returns per unit of risk. Corporate Bond Portfolio is currently generating about 0.03 per unit of risk. If you would invest  2,124  in Mid Cap Growth on September 19, 2024 and sell it today you would earn a total of  279.00  from holding Mid Cap Growth or generate 13.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Mid Cap Growth  vs.  Corporate Bond Portfolio

Mid Cap Growth

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 23 (%) 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.

Corporate Bond Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Corporate Bond Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Corporate Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and Corporate Bond

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

The idea behind Mid Cap Growth and Corporate Bond Portfolio 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..