Correlation Between Sp Midcap and Intermediate-term

Can any of the company-specific risk be diversified away by investing in both Sp Midcap and Intermediate-term 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 Intermediate-term 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 Intermediate Term Tax Free Bond, you can compare the effects of market volatilities on Sp Midcap and Intermediate-term 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 Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp Midcap and Intermediate-term.

Diversification Opportunities for Sp Midcap and Intermediate-term

-0.2

Correlation Coefficient

Sp Midcap  Intermediate-term

Good diversification

The 3 months correlation between SPMIX and Intermediate-term is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sp Midcap Index and Intermediate Term Tax Free Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Tax 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 Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Tax has no effect on the direction of Sp Midcap i.e., Sp Midcap and Intermediate-term go up and down completely randomly.

Pair Corralation between Sp Midcap and Intermediate-term

Assuming the 90 days horizon Sp Midcap Index is expected to under-perform the Intermediate-term. In addition to that, Sp Midcap is 5.48 times more volatile than Intermediate Term Tax Free Bond. It trades about -0.09 of its total potential returns per unit of risk. Intermediate Term Tax Free Bond is currently generating about -0.02 per unit of volatility. If you would invest  1,062  in Intermediate Term Tax Free Bond on December 30, 2024 and sell it today you would lose (3.00) from holding Intermediate Term Tax Free Bond or give up 0.28% of portfolio value over 90 days.

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

Sp Midcap Index  vs.  Intermediate Term Tax Free Bon

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.

Intermediate Term Tax

Risk-Adjusted Performance

Very Weak

Over the last 90 days Intermediate Term Tax Free Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Intermediate-term 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 Intermediate-term

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

The idea behind Sp Midcap Index and Intermediate Term Tax Free Bond 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.