Correlation Between Madison Moderate and Madison Covered

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

Diversification Opportunities for Madison Moderate and Madison Covered

0.8

Correlation Coefficient

Madison Moderate  Madison Covered

Very poor diversification

The 3 months correlation between Madison and Madison is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Madison Moderate Allocation and Madison Ered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Ered Call 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 Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Ered Call has no effect on the direction of Madison Moderate i.e., Madison Moderate and Madison Covered go up and down completely randomly.

Pair Corralation between Madison Moderate and Madison Covered

Assuming the 90 days horizon Madison Moderate Allocation is expected to generate 1.08 times more return on investment than Madison Covered. However, Madison Moderate is 1.08 times more volatile than Madison Ered Call. It trades about 0.12 of its potential returns per unit of risk. Madison Ered Call is currently generating about 0.12 per unit of risk. If you would invest  1,103  in Madison Moderate Allocation on September 5, 2024 and sell it today you would earn a total of  30.00  from holding Madison Moderate Allocation or generate 2.72% return on investment over 90 days.

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

Madison Moderate Allocation  vs.  Madison Ered Call

Madison Moderate All

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Moderate Allocation are ranked lower than 9 (%) 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.

Madison Ered Call

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Ered Call are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Madison Covered 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 Covered

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

The idea behind Madison Moderate Allocation and Madison Ered Call 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.