Correlation Between Mid Cap and Davidson Multi-cap

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

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

Diversification Opportunities for Mid Cap and Davidson Multi-cap

0.78

Correlation Coefficient

Mid Cap  Davidson Multi-cap

Poor diversification

The 3 months correlation between Mid and Davidson is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Davidson Multi Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davidson Multi Cap and Mid Cap 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 Mid Cap Growth are associated (or correlated) with Davidson Multi-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davidson Multi Cap has no effect on the direction of Mid Cap i.e., Mid Cap and Davidson Multi-cap go up and down completely randomly.

Pair Corralation between Mid Cap and Davidson Multi-cap

Assuming the 90 days horizon Mid Cap Growth is expected to under-perform the Davidson Multi-cap. In addition to that, Mid Cap is 1.41 times more volatile than Davidson Multi Cap Equity. It trades about -0.2 of its total potential returns per unit of risk. Davidson Multi Cap Equity is currently generating about -0.1 per unit of volatility. If you would invest  3,501  in Davidson Multi Cap Equity on October 11, 2024 and sell it today you would lose (69.00) from holding Davidson Multi Cap Equity or give up 1.97% of portfolio value over 90 days.

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

Mid Cap Growth  vs.  Davidson Multi Cap Equity

Mid Cap Growth

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 4 (%) 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.

Davidson Multi Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Davidson Multi Cap Equity are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davidson Multi-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 Mid Cap and Davidson Multi-cap

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

The idea behind Mid Cap Growth and Davidson Multi Cap Equity 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 Anywhere module to track or share privately all of your investments from the convenience of any device.