Correlation Between Midcap Growth and Midcap Fund

Can any of the company-specific risk be diversified away by investing in both Midcap Growth and Midcap Fund 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 Midcap Fund 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 Midcap Fund R 5, you can compare the effects of market volatilities on Midcap Growth and Midcap Fund 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 Midcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and Midcap Fund.

Diversification Opportunities for Midcap Growth and Midcap Fund

0.81

Correlation Coefficient

Midcap Growth  Midcap Fund

Very poor diversification

The 3 months correlation between Midcap and Midcap is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and Midcap Fund R 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund R 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 Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund R has no effect on the direction of Midcap Growth i.e., Midcap Growth and Midcap Fund go up and down completely randomly.

Pair Corralation between Midcap Growth and Midcap Fund

Assuming the 90 days horizon Midcap Growth Fund is expected to generate 1.13 times more return on investment than Midcap Fund. However, Midcap Growth is 1.13 times more volatile than Midcap Fund R 5. It trades about 0.27 of its potential returns per unit of risk. Midcap Fund R 5 is currently generating about 0.23 per unit of risk. If you would invest  717.00  in Midcap Growth Fund on September 5, 2024 and sell it today you would earn a total of  111.00  from holding Midcap Growth Fund or generate 15.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	92.19%
Values	Daily Returns

Midcap Growth Fund  vs.  Midcap Fund R 5

Midcap Growth

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Midcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak basic indicators, Midcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Midcap Fund R

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund R 5 are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Midcap Growth and Midcap Fund

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

The idea behind Midcap Growth Fund and Midcap Fund R 5 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.

Check out your portfolio center.

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.