Correlation Between Sp Midcap and Rmb Mendon

Can any of the company-specific risk be diversified away by investing in both Sp Midcap and Rmb Mendon 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 Rmb Mendon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sp Midcap Index and Rmb Mendon Financial, you can compare the effects of market volatilities on Sp Midcap and Rmb Mendon 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 Rmb Mendon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Midcap and Rmb Mendon.

Diversification Opportunities for Sp Midcap and Rmb Mendon

0.85

Correlation Coefficient

Sp Midcap  Rmb Mendon

Very poor diversification

The 3 months correlation between SPMIX and Rmb is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Sp Midcap Index and Rmb Mendon Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rmb Mendon Financial 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 Index are associated (or correlated) with Rmb Mendon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rmb Mendon Financial has no effect on the direction of Sp Midcap i.e., Sp Midcap and Rmb Mendon go up and down completely randomly.

Pair Corralation between Sp Midcap and Rmb Mendon

Assuming the 90 days horizon Sp Midcap Index is expected to under-perform the Rmb Mendon. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sp Midcap Index is 1.34 times less risky than Rmb Mendon. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Rmb Mendon Financial is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  5,036  in Rmb Mendon Financial on December 19, 2024 and sell it today you would lose (210.00) from holding Rmb Mendon Financial or give up 4.17% of portfolio value over 90 days.

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

Sp Midcap Index  vs.  Rmb Mendon Financial

Sp Midcap Index

Risk-Adjusted Performance

Very Weak

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

Rmb Mendon Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rmb Mendon Financial has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Rmb Mendon 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 Rmb Mendon

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

The idea behind Sp Midcap Index and Rmb Mendon Financial 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 Global Correlations module to find global opportunities by holding instruments from different markets.