Correlation Between Pear Tree and Midcap Fund

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

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

Diversification Opportunities for Pear Tree and Midcap Fund

-0.06

Correlation Coefficient

Pear Tree  Midcap Fund

Good diversification

The 3 months correlation between Pear and Midcap is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Pear Tree Polaris and Midcap Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund Institutional and Pear Tree 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 Pear Tree Polaris 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 Institutional has no effect on the direction of Pear Tree i.e., Pear Tree and Midcap Fund go up and down completely randomly.

Pair Corralation between Pear Tree and Midcap Fund

Assuming the 90 days horizon Pear Tree Polaris is expected to generate 0.76 times more return on investment than Midcap Fund. However, Pear Tree Polaris is 1.31 times less risky than Midcap Fund. It trades about 0.17 of its potential returns per unit of risk. Midcap Fund Institutional is currently generating about -0.02 per unit of risk. If you would invest  2,233  in Pear Tree Polaris on December 28, 2024 and sell it today you would earn a total of  185.00  from holding Pear Tree Polaris or generate 8.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Pear Tree Polaris  vs.  Midcap Fund Institutional

Pear Tree Polaris

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pear Tree Polaris are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Pear Tree may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Midcap Fund Institutional

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Pear Tree and Midcap Fund

The main advantage of trading using opposite Pear Tree and Midcap Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pear Tree 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 Pear Tree Polaris and Midcap Fund Institutional 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.