Correlation Between Sp Midcap and Strengthening Dollar

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

Diversification Opportunities for Sp Midcap and Strengthening Dollar

-0.68

Correlation Coefficient

Sp Midcap  Strengthening Dollar

Excellent diversification

The 3 months correlation between RYBHX and Strengthening is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sp Midcap 400 and Strengthening Dollar 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strengthening Dollar 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 Strengthening Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strengthening Dollar has no effect on the direction of Sp Midcap i.e., Sp Midcap and Strengthening Dollar go up and down completely randomly.

Pair Corralation between Sp Midcap and Strengthening Dollar

Assuming the 90 days horizon Sp Midcap 400 is expected to under-perform the Strengthening Dollar. In addition to that, Sp Midcap is 2.56 times more volatile than Strengthening Dollar 2x. It trades about -0.18 of its total potential returns per unit of risk. Strengthening Dollar 2x is currently generating about 0.04 per unit of volatility. If you would invest  5,473  in Strengthening Dollar 2x on November 29, 2024 and sell it today you would earn a total of  110.00  from holding Strengthening Dollar 2x or generate 2.01% return on investment over 90 days.

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

Sp Midcap 400  vs.  Strengthening Dollar 2x

Sp Midcap 400

Risk-Adjusted Performance

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 weak performance in the last few months, the Fund's technical indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Strengthening Dollar

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Strengthening Dollar 2x are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, Strengthening Dollar 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 Strengthening Dollar

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

The idea behind Sp Midcap 400 and Strengthening Dollar 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.