Correlation Between Midcap Fund and Blue Chip

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

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

Diversification Opportunities for Midcap Fund and Blue Chip

0.85

Correlation Coefficient

Midcap Fund  Blue Chip

Very poor diversification

The 3 months correlation between Midcap and Blue is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Institutional and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund and Midcap Fund 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 Midcap Fund Institutional are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of Midcap Fund i.e., Midcap Fund and Blue Chip go up and down completely randomly.

Pair Corralation between Midcap Fund and Blue Chip

Assuming the 90 days horizon Midcap Fund is expected to generate 1.4 times less return on investment than Blue Chip. But when comparing it to its historical volatility, Midcap Fund Institutional is 1.04 times less risky than Blue Chip. It trades about 0.07 of its potential returns per unit of risk. Blue Chip Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,820  in Blue Chip Fund on October 10, 2024 and sell it today you would earn a total of  1,565  from holding Blue Chip Fund or generate 55.5% return on investment over 90 days.

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

Midcap Fund Institutional  vs.  Blue Chip Fund

Midcap Fund Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Midcap Fund Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Midcap Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Blue Chip Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Blue Chip Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Blue Chip is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Midcap Fund and Blue Chip

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

The idea behind Midcap Fund Institutional and Blue Chip 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.