Correlation Between Midcap Growth and Inflation Adjusted

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

Diversification Opportunities for Midcap Growth and Inflation Adjusted

0.56

Correlation Coefficient

Midcap Growth  Inflation Adjusted

Very weak diversification

The 3 months correlation between Midcap and Inflation is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and Inflation Adjusted Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Adjusted 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 Inflation Adjusted. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Adjusted Bond has no effect on the direction of Midcap Growth i.e., Midcap Growth and Inflation Adjusted go up and down completely randomly.

Pair Corralation between Midcap Growth and Inflation Adjusted

Assuming the 90 days horizon Midcap Growth Fund is expected to generate 3.76 times more return on investment than Inflation Adjusted. However, Midcap Growth is 3.76 times more volatile than Inflation Adjusted Bond Fund. It trades about 0.27 of its potential returns per unit of risk. Inflation Adjusted Bond Fund is currently generating about 0.14 per unit of risk. If you would invest  599.00  in Midcap Growth Fund on October 26, 2024 and sell it today you would earn a total of  27.00  from holding Midcap Growth Fund or generate 4.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Midcap Growth Fund  vs.  Inflation Adjusted Bond Fund

Midcap Growth

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Inflation Adjusted Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inflation Adjusted Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Inflation Adjusted 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 Inflation Adjusted

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

The idea behind Midcap Growth Fund and Inflation Adjusted Bond Fund 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.