Correlation Between Mid Cap and Financial Services

Can any of the company-specific risk be diversified away by investing in both Mid Cap 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 Mid Cap and Financial Services 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 Financial Services Fund, you can compare the effects of market volatilities on Mid Cap 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 Mid Cap with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Financial Services.

Diversification Opportunities for Mid Cap and Financial Services

0.89

Correlation Coefficient

Mid Cap  Financial Services

Very poor diversification

The 3 months correlation between Mid and Financial is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services 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 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 Mid Cap i.e., Mid Cap and Financial Services go up and down completely randomly.

Pair Corralation between Mid Cap and Financial Services

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the Financial Services. In addition to that, Mid Cap is 1.45 times more volatile than Financial Services Fund. It trades about -0.01 of its total potential returns per unit of risk. Financial Services Fund is currently generating about 0.02 per unit of volatility. If you would invest  8,103  in Financial Services Fund on September 22, 2024 and sell it today you would earn a total of  109.00  from holding Financial Services Fund or generate 1.35% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Financial Services Fund

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 fundamental indicators, Mid Cap 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 Mid Cap and Financial Services

The main advantage of trading using opposite Mid Cap and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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 Mid Cap 15x Strategy 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.