Correlation Between Sp Midcap and Financial Services

Can any of the company-specific risk be diversified away by investing in both Sp Midcap and Financial Services 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 Sp Midcap and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sp Midcap 400 and Financial Services Fund, you can compare the effects of market volatilities on Sp Midcap and Financial Services 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 Sp Midcap with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Midcap and Financial Services.

Diversification Opportunities for Sp Midcap and Financial Services

0.81

Correlation Coefficient

Sp Midcap  Financial Services

Very poor diversification

The 3 months correlation between RYAVX and Financial is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sp Midcap 400 and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Sp Midcap 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 Sp Midcap 400 are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Sp Midcap i.e., Sp Midcap and Financial Services go up and down completely randomly.

Pair Corralation between Sp Midcap and Financial Services

Assuming the 90 days horizon Sp Midcap 400 is expected to under-perform the Financial Services. In addition to that, Sp Midcap is 1.81 times more volatile than Financial Services Fund. It trades about -0.3 of its total potential returns per unit of risk. Financial Services Fund is currently generating about -0.34 per unit of volatility. If you would invest  8,831  in Financial Services Fund on September 22, 2024 and sell it today you would lose (619.00) from holding Financial Services Fund or give up 7.01% of portfolio value over 90 days.

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

Sp Midcap 400  vs.  Financial Services Fund

Sp Midcap 400

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sp Midcap 400 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sp Midcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Financial Services

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp Midcap and Financial Services

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

The idea behind Sp Midcap 400 and Financial Services Fund 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.