Correlation Between Smead Value and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Smead Value and Mid Cap 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 Smead Value and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smead Value Fund and Mid Cap Value, you can compare the effects of market volatilities on Smead Value and Mid Cap 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 Smead Value with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smead Value and Mid Cap.

Diversification Opportunities for Smead Value and Mid Cap

0.28

Correlation Coefficient

Smead Value  Mid Cap

Modest diversification

The 3 months correlation between Smead and Mid is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund and Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and Smead Value 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 Smead Value Fund are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Smead Value i.e., Smead Value and Mid Cap go up and down completely randomly.

Pair Corralation between Smead Value and Mid Cap

Assuming the 90 days horizon Smead Value is expected to generate 3.13 times less return on investment than Mid Cap. In addition to that, Smead Value is 1.32 times more volatile than Mid Cap Value. It trades about 0.03 of its total potential returns per unit of risk. Mid Cap Value is currently generating about 0.12 per unit of volatility. If you would invest  1,544  in Mid Cap Value on September 15, 2024 and sell it today you would earn a total of  167.00  from holding Mid Cap Value or generate 10.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Smead Value Fund  vs.  Mid Cap Value

Smead Value Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mid Cap Value

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with Smead Value and Mid Cap

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

The idea behind Smead Value Fund and Mid Cap Value 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 Transaction History module to view history of all your transactions and understand their impact on performance.