Correlation Between Mid Cap and Rydex Inverse

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Rydex Inverse 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 Rydex Inverse 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 Rydex Inverse Nasdaq 100, you can compare the effects of market volatilities on Mid Cap and Rydex Inverse 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 Rydex Inverse. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Rydex Inverse.

Diversification Opportunities for Mid Cap and Rydex Inverse

-0.34

Correlation Coefficient

Mid Cap  Rydex Inverse

Very good diversification

The 3 months correlation between Mid and Rydex is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Rydex Inverse Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rydex Inverse Nasdaq 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 Rydex Inverse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rydex Inverse Nasdaq has no effect on the direction of Mid Cap i.e., Mid Cap and Rydex Inverse go up and down completely randomly.

Pair Corralation between Mid Cap and Rydex Inverse

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 0.67 times more return on investment than Rydex Inverse. However, Mid Cap 15x Strategy is 1.49 times less risky than Rydex Inverse. It trades about 0.07 of its potential returns per unit of risk. Rydex Inverse Nasdaq 100 is currently generating about -0.1 per unit of risk. If you would invest  10,644  in Mid Cap 15x Strategy on September 28, 2024 and sell it today you would earn a total of  2,806  from holding Mid Cap 15x Strategy or generate 26.36% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Rydex Inverse Nasdaq 100

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.

Rydex Inverse Nasdaq

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rydex Inverse Nasdaq 100 has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Mid Cap and Rydex Inverse

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

The idea behind Mid Cap 15x Strategy and Rydex Inverse Nasdaq 100 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.