Correlation Between Inverse Mid-cap and Dow Jones

Can any of the company-specific risk be diversified away by investing in both Inverse Mid-cap and Dow Jones 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 Inverse Mid-cap and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inverse Mid Cap Strategy and Dow Jones Industrial, you can compare the effects of market volatilities on Inverse Mid-cap and Dow Jones 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 Inverse Mid-cap with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Mid-cap and Dow Jones.

Diversification Opportunities for Inverse Mid-cap and Dow Jones

-0.49

Correlation Coefficient

Inverse Mid-cap  Dow Jones

Very good diversification

The 3 months correlation between Inverse and Dow is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Mid Cap Strategy and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Inverse Mid-cap 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 Inverse Mid Cap Strategy are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Inverse Mid-cap i.e., Inverse Mid-cap and Dow Jones go up and down completely randomly.

Pair Corralation between Inverse Mid-cap and Dow Jones

Assuming the 90 days horizon Inverse Mid Cap Strategy is expected to generate 4.88 times more return on investment than Dow Jones. However, Inverse Mid-cap is 4.88 times more volatile than Dow Jones Industrial. It trades about 0.06 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.1 per unit of risk. If you would invest  3,642  in Inverse Mid Cap Strategy on November 28, 2024 and sell it today you would earn a total of  369.00  from holding Inverse Mid Cap Strategy or generate 10.13% return on investment over 90 days.

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

Inverse Mid Cap Strategy  vs.  Dow Jones Industrial

Inverse Mid Cap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Mid Cap Strategy are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Inverse Mid-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Dow Jones Industrial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Inverse Mid-cap and Dow Jones

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

The idea behind Inverse Mid Cap Strategy and Dow Jones Industrial 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.