Correlation Between Tax-managed Large and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Tax-managed Large and Mid Cap 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 Tax-managed Large and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tax Managed Large Cap and Mid Cap Value, you can compare the effects of market volatilities on Tax-managed Large and Mid Cap 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 Tax-managed Large with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tax-managed Large and Mid Cap.

Diversification Opportunities for Tax-managed Large and Mid Cap

0.38

Correlation Coefficient

Tax-managed Large  Mid Cap

Weak diversification

The 3 months correlation between Tax and Mid is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Large Cap and Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and Tax-managed Large 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 Tax Managed Large Cap are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Tax-managed Large i.e., Tax-managed Large and Mid Cap go up and down completely randomly.

Pair Corralation between Tax-managed Large and Mid Cap

Assuming the 90 days horizon Tax Managed Large Cap is expected to generate 0.47 times more return on investment than Mid Cap. However, Tax Managed Large Cap is 2.12 times less risky than Mid Cap. It trades about -0.2 of its potential returns per unit of risk. Mid Cap Value is currently generating about -0.34 per unit of risk. If you would invest  8,005  in Tax Managed Large Cap on October 4, 2024 and sell it today you would lose (287.00) from holding Tax Managed Large Cap or give up 3.59% of portfolio value over 90 days.

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

Tax Managed Large Cap  vs.  Mid Cap Value

Tax Managed Large

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Managed Large Cap are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Tax-managed Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Cap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Tax-managed Large and Mid Cap

The main advantage of trading using opposite Tax-managed Large and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed Large position performs unexpectedly, Mid Cap 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 Mid Cap will offset losses from the drop in Mid Cap's long position.

The idea behind Tax Managed Large Cap and Mid Cap Value 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.