Correlation Between Mid Cap and Quantitative Longshort

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Quantitative Longshort 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 Quantitative Longshort 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 Quantitative Longshort Equity, you can compare the effects of market volatilities on Mid Cap and Quantitative Longshort 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 Quantitative Longshort. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Quantitative Longshort.

Diversification Opportunities for Mid Cap and Quantitative Longshort

0.9

Correlation Coefficient

Mid Cap  Quantitative Longshort

Almost no diversification

The 3 months correlation between Mid and Quantitative is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Quantitative Longshort Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative Longshort 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 Quantitative Longshort. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative Longshort has no effect on the direction of Mid Cap i.e., Mid Cap and Quantitative Longshort go up and down completely randomly.

Pair Corralation between Mid Cap and Quantitative Longshort

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 3.28 times more return on investment than Quantitative Longshort. However, Mid Cap is 3.28 times more volatile than Quantitative Longshort Equity. It trades about 0.11 of its potential returns per unit of risk. Quantitative Longshort Equity is currently generating about 0.19 per unit of risk. If you would invest  12,932  in Mid Cap 15x Strategy on September 16, 2024 and sell it today you would earn a total of  1,246  from holding Mid Cap 15x Strategy or generate 9.64% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Quantitative Longshort Equity

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.

Quantitative Longshort

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Quantitative Longshort Equity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Quantitative Longshort 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 Quantitative Longshort

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

The idea behind Mid Cap 15x Strategy and Quantitative Longshort Equity 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.