Correlation Between Mid Cap and Rational Defensive

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

Diversification Opportunities for Mid Cap and Rational Defensive

0.64

Correlation Coefficient

Mid Cap  Rational Defensive

Poor diversification

The 3 months correlation between Mid and Rational is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth 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 Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Mid Cap i.e., Mid Cap and Rational Defensive go up and down completely randomly.

Pair Corralation between Mid Cap and Rational Defensive

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the Rational Defensive. In addition to that, Mid Cap is 1.37 times more volatile than Rational Defensive Growth. It trades about -0.38 of its total potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.04 per unit of volatility. If you would invest  4,012  in Rational Defensive Growth on September 26, 2024 and sell it today you would earn a total of  31.00  from holding Rational Defensive Growth or generate 0.77% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Rational Defensive Growth

Mid Cap 15x

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rational Defensive Growth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mid Cap and Rational Defensive

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

The idea behind Mid Cap 15x Strategy and Rational Defensive Growth 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 CEOs Directory module to screen CEOs from public companies around the world.