Correlation Between Mid-cap 15x and Inverse Dow

Can any of the company-specific risk be diversified away by investing in both Mid-cap 15x and Inverse Dow 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 Inverse Dow 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 Inverse Dow 2x, you can compare the effects of market volatilities on Mid-cap 15x and Inverse Dow 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 Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid-cap 15x and Inverse Dow.

Diversification Opportunities for Mid-cap 15x and Inverse Dow

-0.84

Correlation Coefficient

Mid-cap 15x  Inverse Dow

Pay attention - limited upside

The 3 months correlation between Mid-cap and Inverse is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x 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 Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Mid-cap 15x i.e., Mid-cap 15x and Inverse Dow go up and down completely randomly.

Pair Corralation between Mid-cap 15x and Inverse Dow

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the Inverse Dow. But the mutual fund apears to be less risky and, when comparing its historical volatility, Mid Cap 15x Strategy is 1.12 times less risky than Inverse Dow. The mutual fund trades about -0.36 of its potential returns per unit of risk. The Inverse Dow 2x is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,658  in Inverse Dow 2x on October 4, 2024 and sell it today you would earn a total of  182.00  from holding Inverse Dow 2x or generate 6.85% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Inverse Dow 2x

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.

Inverse Dow 2x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Dow 2x has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inverse Dow 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 15x and Inverse Dow

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

The idea behind Mid Cap 15x Strategy and Inverse Dow 2x 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .