Correlation Between Madison Mid and Madison Dividend

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Can any of the company-specific risk be diversified away by investing in both Madison Mid and Madison Dividend 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 Madison Mid and Madison Dividend into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Madison Mid Cap and Madison Dividend Income, you can compare the effects of market volatilities on Madison Mid and Madison Dividend 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 Madison Mid with a short position of Madison Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Mid and Madison Dividend.

Diversification Opportunities for Madison Mid and Madison Dividend

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Madison and Madison is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Madison Mid Cap and Madison Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Dividend Income and Madison Mid 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 Madison Mid Cap are associated (or correlated) with Madison Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Dividend Income has no effect on the direction of Madison Mid i.e., Madison Mid and Madison Dividend go up and down completely randomly.

Pair Corralation between Madison Mid and Madison Dividend

Assuming the 90 days horizon Madison Mid Cap is expected to generate 1.5 times more return on investment than Madison Dividend. However, Madison Mid is 1.5 times more volatile than Madison Dividend Income. It trades about 0.19 of its potential returns per unit of risk. Madison Dividend Income is currently generating about 0.21 per unit of risk. If you would invest  1,717  in Madison Mid Cap on September 6, 2024 and sell it today you would earn a total of  182.00  from holding Madison Mid Cap or generate 10.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Madison Mid Cap  vs.  Madison Dividend Income

 Performance 
       Timeline  
Madison Mid Cap 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Madison Mid Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Madison Mid may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Madison Dividend Income 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Madison Dividend Income are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Madison Dividend may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Madison Mid and Madison Dividend Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Madison Mid and Madison Dividend

The main advantage of trading using opposite Madison Mid and Madison Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Mid position performs unexpectedly, Madison Dividend 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 Madison Dividend will offset losses from the drop in Madison Dividend's long position.
The idea behind Madison Mid Cap and Madison Dividend Income 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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