Correlation Between Madison Mid and Madison Moderate

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

Diversification Opportunities for Madison Mid and Madison Moderate

0.74

Correlation Coefficient

Madison Mid  Madison Moderate

Poor diversification

The 3 months correlation between Madison and Madison is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Madison Mid Cap and Madison Moderate Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Moderate All 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 Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Moderate All has no effect on the direction of Madison Mid i.e., Madison Mid and Madison Moderate go up and down completely randomly.

Pair Corralation between Madison Mid and Madison Moderate

Assuming the 90 days horizon Madison Mid Cap is expected to generate 2.47 times more return on investment than Madison Moderate. However, Madison Mid is 2.47 times more volatile than Madison Moderate Allocation. It trades about 0.17 of its potential returns per unit of risk. Madison Moderate Allocation is currently generating about 0.13 per unit of risk. If you would invest  1,724  in Madison Mid Cap on September 10, 2024 and sell it today you would earn a total of  169.00  from holding Madison Mid Cap or generate 9.8% return on investment over 90 days.

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

Madison Mid Cap  vs.  Madison Moderate Allocation

Madison Mid Cap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Mid Cap are ranked lower than 13 (%) 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 Moderate All

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Moderate Allocation are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Madison Moderate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Mid and Madison Moderate

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

The idea behind Madison Mid Cap and Madison Moderate Allocation 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.