Correlation Between Madison Investors and Sound Shore

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

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

Diversification Opportunities for Madison Investors and Sound Shore

0.7

Correlation Coefficient

Madison Investors  Sound Shore

Poor diversification

The 3 months correlation between Madison and Sound is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Madison Investors Fund and Sound Shore Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Shore Fund and Madison Investors 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 Investors Fund are associated (or correlated) with Sound Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Shore Fund has no effect on the direction of Madison Investors i.e., Madison Investors and Sound Shore go up and down completely randomly.

Pair Corralation between Madison Investors and Sound Shore

Assuming the 90 days horizon Madison Investors Fund is expected to generate 0.42 times more return on investment than Sound Shore. However, Madison Investors Fund is 2.37 times less risky than Sound Shore. It trades about -0.1 of its potential returns per unit of risk. Sound Shore Fund is currently generating about -0.13 per unit of risk. If you would invest  3,089  in Madison Investors Fund on December 23, 2024 and sell it today you would lose (225.00) from holding Madison Investors Fund or give up 7.28% of portfolio value over 90 days.

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

Madison Investors Fund  vs.  Sound Shore Fund

Madison Investors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Madison Investors Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Sound Shore Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sound Shore Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Madison Investors and Sound Shore

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

The idea behind Madison Investors Fund and Sound Shore Fund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.