Correlation Between Diversified International and Midcap Fund

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

By analyzing existing cross correlation between Diversified International Fund and Midcap Fund Class, you can compare the effects of market volatilities on Diversified International and Midcap Fund 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 Diversified International with a short position of Midcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified International and Midcap Fund.

Diversification Opportunities for Diversified International and Midcap Fund

-0.48

Correlation Coefficient

Diversified International  Midcap Fund

Very good diversification

The 3 months correlation between Diversified and Midcap is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Diversified International Fund and Midcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund Class and Diversified International 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 Diversified International Fund are associated (or correlated) with Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund Class has no effect on the direction of Diversified International i.e., Diversified International and Midcap Fund go up and down completely randomly.

Pair Corralation between Diversified International and Midcap Fund

Assuming the 90 days horizon Diversified International Fund is expected to under-perform the Midcap Fund. In addition to that, Diversified International is 1.07 times more volatile than Midcap Fund Class. It trades about -0.02 of its total potential returns per unit of risk. Midcap Fund Class is currently generating about 0.24 per unit of volatility. If you would invest  4,182  in Midcap Fund Class on September 5, 2024 and sell it today you would earn a total of  531.00  from holding Midcap Fund Class or generate 12.7% return on investment over 90 days.

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

Diversified International Fund  vs.  Midcap Fund Class

Diversified International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Midcap Fund Class

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund Class are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diversified International and Midcap Fund

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

The idea behind Diversified International Fund and Midcap Fund Class 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.