Correlation Between Mid Cap and Rational Dynamic

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

Diversification Opportunities for Mid Cap and Rational Dynamic

0.59

Correlation Coefficient

Mid Cap  Rational Dynamic

Very weak diversification

The 3 months correlation between Mid and Rational is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Rational Dynamic Momentum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Dynamic Momentum 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 Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Dynamic Momentum has no effect on the direction of Mid Cap i.e., Mid Cap and Rational Dynamic go up and down completely randomly.

Pair Corralation between Mid Cap and Rational Dynamic

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 2.19 times more return on investment than Rational Dynamic. However, Mid Cap is 2.19 times more volatile than Rational Dynamic Momentum. It trades about 0.04 of its potential returns per unit of risk. Rational Dynamic Momentum is currently generating about 0.0 per unit of risk. If you would invest  11,341  in Mid Cap 15x Strategy on October 24, 2024 and sell it today you would earn a total of  2,886  from holding Mid Cap 15x Strategy or generate 25.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Mid Cap 15x Strategy  vs.  Rational Dynamic Momentum

Mid Cap 15x

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 6 (%) 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 February 2025.

Rational Dynamic Momentum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Dynamic Momentum are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Rational Dynamic 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 Rational Dynamic

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

The idea behind Mid Cap 15x Strategy and Rational Dynamic Momentum 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..