Correlation Between Midcap Growth and Semiconductor Ultrasector

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

Diversification Opportunities for Midcap Growth and Semiconductor Ultrasector

0.31

Correlation Coefficient

Midcap Growth  Semiconductor Ultrasector

Weak diversification

The 3 months correlation between Midcap and Semiconductor is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and Semiconductor Ultrasector Prof in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semiconductor Ultrasector 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 Semiconductor Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semiconductor Ultrasector has no effect on the direction of Midcap Growth i.e., Midcap Growth and Semiconductor Ultrasector go up and down completely randomly.

Pair Corralation between Midcap Growth and Semiconductor Ultrasector

Assuming the 90 days horizon Midcap Growth Fund is expected to under-perform the Semiconductor Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Midcap Growth Fund is 1.23 times less risky than Semiconductor Ultrasector. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Semiconductor Ultrasector Profund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,559  in Semiconductor Ultrasector Profund on October 8, 2024 and sell it today you would earn a total of  814.00  from holding Semiconductor Ultrasector Profund or generate 22.87% return on investment over 90 days.

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

Midcap Growth Fund  vs.  Semiconductor Ultrasector Prof

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.

Semiconductor Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Semiconductor Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Semiconductor Ultrasector 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 Semiconductor Ultrasector

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

The idea behind Midcap Growth Fund and Semiconductor Ultrasector Profund 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..