Correlation Between Inverse Government and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Inverse Government and Mid Cap 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 Inverse Government and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inverse Government Long and Mid Cap Value Profund, you can compare the effects of market volatilities on Inverse Government and Mid Cap 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 Inverse Government with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Government and Mid Cap.

Diversification Opportunities for Inverse Government and Mid Cap

0.71

Correlation Coefficient

Inverse Government  Mid Cap

Poor diversification

The 3 months correlation between Inverse and Mid is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Mid Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and Inverse Government 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 Inverse Government Long are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Inverse Government i.e., Inverse Government and Mid Cap go up and down completely randomly.

Pair Corralation between Inverse Government and Mid Cap

Assuming the 90 days horizon Inverse Government Long is expected to under-perform the Mid Cap. In addition to that, Inverse Government is 1.2 times more volatile than Mid Cap Value Profund. It trades about -0.05 of its total potential returns per unit of risk. Mid Cap Value Profund is currently generating about -0.03 per unit of volatility. If you would invest  9,424  in Mid Cap Value Profund on September 12, 2024 and sell it today you would lose (46.00) from holding Mid Cap Value Profund or give up 0.49% of portfolio value over 90 days.

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

Inverse Government Long  vs.  Mid Cap Value Profund

Inverse Government Long

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Government may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mid Cap Value

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value Profund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Inverse Government and Mid Cap

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

The idea behind Inverse Government Long and Mid Cap Value Profund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.