Correlation Between Mid Cap and Aggressive Allocation

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and Aggressive Allocation Fund, you can compare the effects of market volatilities on Mid Cap and Aggressive Allocation 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 Mid Cap with a short position of Aggressive Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Aggressive Allocation.

Diversification Opportunities for Mid Cap and Aggressive Allocation

0.83

Correlation Coefficient

Mid Cap  Aggressive Allocation

Very poor diversification

The 3 months correlation between Mid and Aggressive is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Aggressive Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Allocation and 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 Mid Cap 15x Strategy are associated (or correlated) with Aggressive Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Allocation has no effect on the direction of Mid Cap i.e., Mid Cap and Aggressive Allocation go up and down completely randomly.

Pair Corralation between Mid Cap and Aggressive Allocation

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 2.08 times more return on investment than Aggressive Allocation. However, Mid Cap is 2.08 times more volatile than Aggressive Allocation Fund. It trades about 0.1 of its potential returns per unit of risk. Aggressive Allocation Fund is currently generating about 0.08 per unit of risk. If you would invest  13,035  in Mid Cap 15x Strategy on September 17, 2024 and sell it today you would earn a total of  1,143  from holding Mid Cap 15x Strategy or generate 8.77% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Aggressive Allocation Fund

Mid Cap 15x

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aggressive Allocation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Allocation Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Aggressive Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and Aggressive Allocation

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

The idea behind Mid Cap 15x Strategy and Aggressive Allocation Fund 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.