Correlation Between Madison Moderate and Madison Core

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

By analyzing existing cross correlation between Madison Moderate Allocation and Madison Core Bond, you can compare the effects of market volatilities on Madison Moderate and Madison Core 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 Moderate with a short position of Madison Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Moderate and Madison Core.

Diversification Opportunities for Madison Moderate and Madison Core

0.86

Correlation Coefficient

Madison Moderate  Madison Core

Very poor diversification

The 3 months correlation between Madison and Madison is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Madison Moderate Allocation and Madison Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Core Bond and Madison Moderate 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 Moderate Allocation are associated (or correlated) with Madison Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Core Bond has no effect on the direction of Madison Moderate i.e., Madison Moderate and Madison Core go up and down completely randomly.

Pair Corralation between Madison Moderate and Madison Core

Assuming the 90 days horizon Madison Moderate Allocation is expected to under-perform the Madison Core. In addition to that, Madison Moderate is 2.23 times more volatile than Madison Core Bond. It trades about -0.01 of its total potential returns per unit of risk. Madison Core Bond is currently generating about 0.04 per unit of volatility. If you would invest  881.00  in Madison Core Bond on October 26, 2024 and sell it today you would earn a total of  2.00  from holding Madison Core Bond or generate 0.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.74%
Values	Daily Returns

Madison Moderate Allocation  vs.  Madison Core Bond

Madison Moderate All

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Moderate Allocation has generated negative risk-adjusted returns adding no value to fund investors. 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.

Madison Core Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Core Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Madison Core 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 Moderate and Madison Core

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

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