Correlation Between Precious Metals and Sp Midcap

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

By analyzing existing cross correlation between Precious Metals Ultrasector and Sp Midcap Index, you can compare the effects of market volatilities on Precious Metals and Sp Midcap 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 Precious Metals with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Sp Midcap.

Diversification Opportunities for Precious Metals and Sp Midcap

-0.51

Correlation Coefficient

Precious Metals  Sp Midcap

Excellent diversification

The 3 months correlation between Precious and SPMIX is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Ultrasector and Sp Midcap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap Index and Precious Metals 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 Precious Metals Ultrasector are associated (or correlated) with Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap Index has no effect on the direction of Precious Metals i.e., Precious Metals and Sp Midcap go up and down completely randomly.

Pair Corralation between Precious Metals and Sp Midcap

Assuming the 90 days horizon Precious Metals Ultrasector is expected to generate 2.5 times more return on investment than Sp Midcap. However, Precious Metals is 2.5 times more volatile than Sp Midcap Index. It trades about 0.28 of its potential returns per unit of risk. Sp Midcap Index is currently generating about -0.07 per unit of risk. If you would invest  4,548  in Precious Metals Ultrasector on December 29, 2024 and sell it today you would earn a total of  2,508  from holding Precious Metals Ultrasector or generate 55.15% return on investment over 90 days.

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

Precious Metals Ultrasector  vs.  Sp Midcap Index

Precious Metals Ultr

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Ultrasector are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Precious Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Sp Midcap Index

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Precious Metals and Sp Midcap

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

The idea behind Precious Metals Ultrasector and Sp Midcap Index 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 Anywhere module to track or share privately all of your investments from the convenience of any device.