Correlation Between Short-term Income and Midcap Growth

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

By analyzing existing cross correlation between Short Term Income Fund and Midcap Growth Fund, you can compare the effects of market volatilities on Short-term Income 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 Short-term Income with a short position of Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Income and Midcap Growth.

Diversification Opportunities for Short-term Income and Midcap Growth

-0.46

Correlation Coefficient

Short-term Income  Midcap Growth

Very good diversification

The 3 months correlation between Short-term and Midcap is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Income 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 Short-term Income 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 Short Term Income 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 Short-term Income i.e., Short-term Income and Midcap Growth go up and down completely randomly.

Pair Corralation between Short-term Income and Midcap Growth

Assuming the 90 days horizon Short Term Income Fund is not expected to generate positive returns. However, Short Term Income Fund is 9.8 times less risky than Midcap Growth. It waists most of its returns potential to compensate for thr risk taken. Midcap Growth is generating about 0.39 per unit of risk. If you would invest  1,020  in Midcap Growth Fund on September 4, 2024 and sell it today you would earn a total of  269.00  from holding Midcap Growth Fund or generate 26.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Short Term Income Fund  vs.  Midcap Growth Fund

Short Term Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Midcap Growth

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Growth Fund are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Midcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Short-term Income and Midcap Growth

The main advantage of trading using opposite Short-term Income and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short-term Income 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 Short Term Income 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.

Check out your portfolio center.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.