Correlation Between Midcap Fund and State Farm

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

By analyzing existing cross correlation between Midcap Fund R 1 and State Farm International, you can compare the effects of market volatilities on Midcap Fund and State Farm 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 State Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Fund and State Farm.

Diversification Opportunities for Midcap Fund and State Farm

-0.65

Correlation Coefficient

Midcap Fund  State Farm

Excellent diversification

The 3 months correlation between Midcap and State is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund R 1 and State Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm International 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 R 1 are associated (or correlated) with State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm International has no effect on the direction of Midcap Fund i.e., Midcap Fund and State Farm go up and down completely randomly.

Pair Corralation between Midcap Fund and State Farm

Assuming the 90 days horizon Midcap Fund R 1 is expected to generate 4.3 times more return on investment than State Farm. However, Midcap Fund is 4.3 times more volatile than State Farm International. It trades about 0.69 of its potential returns per unit of risk. State Farm International is currently generating about 0.09 per unit of risk. If you would invest  3,964  in Midcap Fund R 1 on September 17, 2024 and sell it today you would earn a total of  133.00  from holding Midcap Fund R 1 or generate 3.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	35.0%
Values	Daily Returns

Midcap Fund R 1  vs.  State Farm International

Midcap Fund R

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Midcap Fund R 1 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental drivers, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

State Farm International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Farm 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 Fund and State Farm

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

The idea behind Midcap Fund R 1 and State Farm International 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .