Correlation Between Small Pany and Mid Cap

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

By analyzing existing cross correlation between Small Pany Growth and Mid Cap Growth, you can compare the effects of market volatilities on Small Pany and Mid Cap 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 Small Pany with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Pany and Mid Cap.

Diversification Opportunities for Small Pany and Mid Cap

0.98

Correlation Coefficient

Small Pany  Mid Cap

Almost no diversification

The 3 months correlation between Small and Mid is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth and Small Pany 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 Small Pany Growth are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Growth has no effect on the direction of Small Pany i.e., Small Pany and Mid Cap go up and down completely randomly.

Pair Corralation between Small Pany and Mid Cap

Assuming the 90 days horizon Small Pany is expected to generate 1.05 times less return on investment than Mid Cap. In addition to that, Small Pany is 1.08 times more volatile than Mid Cap Growth. It trades about 0.08 of its total potential returns per unit of risk. Mid Cap Growth is currently generating about 0.09 per unit of volatility. If you would invest  702.00  in Mid Cap Growth on September 20, 2024 and sell it today you would earn a total of  802.00  from holding Mid Cap Growth or generate 114.25% return on investment over 90 days.

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

Small Pany Growth  vs.  Mid Cap Growth

Small Pany Growth

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Growth are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Small Pany showed solid returns over the last few months and may actually be approaching a breakup point.

Mid Cap Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Pany and Mid Cap

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

The idea behind Small Pany Growth and Mid Cap Growth 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.