Correlation Between Midcap Growth and Government High

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

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

Diversification Opportunities for Midcap Growth and Government High

-0.7

Correlation Coefficient

Midcap Growth  Government High

Excellent diversification

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

Pair Corralation between Midcap Growth and Government High

Assuming the 90 days horizon Midcap Growth Fund is expected to under-perform the Government High. In addition to that, Midcap Growth is 4.94 times more volatile than Government High Quality. It trades about -0.11 of its total potential returns per unit of risk. Government High Quality is currently generating about 0.15 per unit of volatility. If you would invest  871.00  in Government High Quality on December 22, 2024 and sell it today you would earn a total of  27.00  from holding Government High Quality or generate 3.1% return on investment over 90 days.

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

Midcap Growth Fund  vs.  Government High Quality

Midcap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Midcap Growth 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.

Government High Quality

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Government High Quality are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Government High 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 Growth and Government High

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

The idea behind Midcap Growth Fund and Government High Quality 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.