Correlation Between Mid Cap and Strengthening Dollar

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

Diversification Opportunities for Mid Cap and Strengthening Dollar

0.64

Correlation Coefficient

Mid Cap  Strengthening Dollar

Poor diversification

The 3 months correlation between Mid and Strengthening is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Strengthening Dollar 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strengthening Dollar 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 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 Mid Cap i.e., Mid Cap and Strengthening Dollar go up and down completely randomly.

Pair Corralation between Mid Cap and Strengthening Dollar

Assuming the 90 days horizon Mid Cap is expected to generate 13.01 times less return on investment than Strengthening Dollar. In addition to that, Mid Cap is 1.73 times more volatile than Strengthening Dollar 2x. It trades about 0.01 of its total potential returns per unit of risk. Strengthening Dollar 2x is currently generating about 0.23 per unit of volatility. If you would invest  5,980  in Strengthening Dollar 2x on September 26, 2024 and sell it today you would earn a total of  795.00  from holding Strengthening Dollar 2x or generate 13.29% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Strengthening Dollar 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 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.

Strengthening Dollar

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Strengthening Dollar 2x are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Strengthening Dollar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mid Cap and Strengthening Dollar

The main advantage of trading using opposite Mid Cap and Strengthening Dollar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap 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 Mid Cap 15x Strategy 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.