Correlation Between Midcap Fund and Bright Rock

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

By analyzing existing cross correlation between Midcap Fund Class and Bright Rock Mid, you can compare the effects of market volatilities on Midcap Fund and Bright Rock 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 Bright Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Fund and Bright Rock.

Diversification Opportunities for Midcap Fund and Bright Rock

0.99

Correlation Coefficient

Midcap Fund  Bright Rock

No risk reduction

The 3 months correlation between Midcap and Bright is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Class and Bright Rock Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Rock Mid 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 Class are associated (or correlated) with Bright Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Rock Mid has no effect on the direction of Midcap Fund i.e., Midcap Fund and Bright Rock go up and down completely randomly.

Pair Corralation between Midcap Fund and Bright Rock

Assuming the 90 days horizon Midcap Fund Class is expected to generate 1.21 times more return on investment than Bright Rock. However, Midcap Fund is 1.21 times more volatile than Bright Rock Mid. It trades about 0.17 of its potential returns per unit of risk. Bright Rock Mid is currently generating about 0.19 per unit of risk. If you would invest  3,508  in Midcap Fund Class on September 12, 2024 and sell it today you would earn a total of  314.00  from holding Midcap Fund Class or generate 8.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Midcap Fund Class  vs.  Bright Rock Mid

Midcap Fund Class

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund Class are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bright Rock Mid

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Rock Mid are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Bright Rock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Midcap Fund and Bright Rock

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

The idea behind Midcap Fund Class and Bright Rock Mid 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.