Correlation Between Midcap Growth and Core Plus

Can any of the company-specific risk be diversified away by investing in both Midcap Growth and Core Plus 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 Core Plus 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 Core Plus Bond, you can compare the effects of market volatilities on Midcap Growth and Core Plus 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 Core Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and Core Plus.

Diversification Opportunities for Midcap Growth and Core Plus

-0.64

Correlation Coefficient

Midcap Growth  Core Plus

Excellent diversification

The 3 months correlation between Midcap and CORE is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and Core Plus Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Bond 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 Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Bond has no effect on the direction of Midcap Growth i.e., Midcap Growth and Core Plus go up and down completely randomly.

Pair Corralation between Midcap Growth and Core Plus

Assuming the 90 days horizon Midcap Growth Fund is expected to under-perform the Core Plus. In addition to that, Midcap Growth is 5.62 times more volatile than Core Plus Bond. It trades about -0.1 of its total potential returns per unit of risk. Core Plus Bond is currently generating about 0.07 per unit of volatility. If you would invest  887.00  in Core Plus Bond on December 28, 2024 and sell it today you would earn a total of  12.00  from holding Core Plus Bond or generate 1.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Midcap Growth Fund  vs.  Core Plus Bond

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.

Core Plus Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Core Plus Bond are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Core Plus 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 Core Plus

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

The idea behind Midcap Growth Fund and Core Plus Bond 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.