Correlation Between Mid-cap 15x and Small Company

Can any of the company-specific risk be diversified away by investing in both Mid-cap 15x and Small Company 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 15x and Small Company 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 Small Pany Growth, you can compare the effects of market volatilities on Mid-cap 15x and Small Company 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 15x with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid-cap 15x and Small Company.

Diversification Opportunities for Mid-cap 15x and Small Company

0.43

Correlation Coefficient

Mid-cap 15x  Small Company

Very weak diversification

The 3 months correlation between Mid-cap and Small is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth and Mid-cap 15x 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 Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Mid-cap 15x i.e., Mid-cap 15x and Small Company go up and down completely randomly.

Pair Corralation between Mid-cap 15x and Small Company

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the Small Company. But the mutual fund apears to be less risky and, when comparing its historical volatility, Mid Cap 15x Strategy is 1.56 times less risky than Small Company. The mutual fund trades about -0.23 of its potential returns per unit of risk. The Small Pany Growth is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  902.00  in Small Pany Growth on October 11, 2024 and sell it today you would lose (35.00) from holding Small Pany Growth or give up 3.88% of portfolio value over 90 days.

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

Mid Cap 15x Strategy  vs.  Small Pany Growth

Mid Cap 15x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Cap 15x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Mid-cap 15x is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Pany Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Small Company showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mid-cap 15x and Small Company

The main advantage of trading using opposite Mid-cap 15x and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid-cap 15x position performs unexpectedly, Small Company 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 Small Company will offset losses from the drop in Small Company's long position.

The idea behind Mid Cap 15x Strategy and Small Pany 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.