Correlation Between Precious Metals and Midcap Growth

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Can any of the company-specific risk be diversified away by investing in both Precious Metals and Midcap Growth 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 Precious Metals and Midcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Precious Metals Fund and Midcap Growth Fund, you can compare the effects of market volatilities on Precious Metals and Midcap Growth 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 Precious Metals with a short position of Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Midcap Growth.

Diversification Opportunities for Precious Metals and Midcap Growth

PreciousMidcapDiversified AwayPreciousMidcapDiversified Away100%
0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Precious and Midcap is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Fund and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth and Precious Metals 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 Precious Metals Fund are associated (or correlated) with Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Precious Metals i.e., Precious Metals and Midcap Growth go up and down completely randomly.

Pair Corralation between Precious Metals and Midcap Growth

Assuming the 90 days horizon Precious Metals Fund is expected to generate 1.51 times more return on investment than Midcap Growth. However, Precious Metals is 1.51 times more volatile than Midcap Growth Fund. It trades about 0.12 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about -0.25 per unit of risk. If you would invest  4,135  in Precious Metals Fund on November 25, 2024 and sell it today you would earn a total of  201.00  from holding Precious Metals Fund or generate 4.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Precious Metals Fund  vs.  Midcap Growth Fund

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-50510
JavaScript chart by amCharts 3.21.15RYPMX PFPPX
       Timeline  
Precious Metals 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Precious Metals may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb383940414243444546
Midcap Growth 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Midcap Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb10.210.410.610.811

Precious Metals and Midcap Growth Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.18-4.63-3.08-1.530.01.573.174.766.36 0.050.100.150.20
JavaScript chart by amCharts 3.21.15RYPMX PFPPX
       Returns  

Pair Trading with Precious Metals and Midcap Growth

The main advantage of trading using opposite Precious Metals and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Precious Metals position performs unexpectedly, Midcap Growth 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 Midcap Growth will offset losses from the drop in Midcap Growth's long position.
The idea behind Precious Metals Fund and Midcap Growth 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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