Correlation Between Mid Cap and Longleaf Partners

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Longleaf Partners 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 Longleaf Partners 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 Longleaf Partners Fund, you can compare the effects of market volatilities on Mid Cap and Longleaf Partners 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 Longleaf Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Longleaf Partners.

Diversification Opportunities for Mid Cap and Longleaf Partners

0.3

Correlation Coefficient

Mid Cap  Longleaf Partners

Weak diversification

The 3 months correlation between Mid and Longleaf is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Longleaf Partners Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longleaf Partners 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 Longleaf Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longleaf Partners has no effect on the direction of Mid Cap i.e., Mid Cap and Longleaf Partners go up and down completely randomly.

Pair Corralation between Mid Cap and Longleaf Partners

Assuming the 90 days horizon Mid Cap Growth is expected to generate 2.22 times more return on investment than Longleaf Partners. However, Mid Cap is 2.22 times more volatile than Longleaf Partners Fund. It trades about 0.18 of its potential returns per unit of risk. Longleaf Partners Fund is currently generating about -0.14 per unit of risk. If you would invest  3,912  in Mid Cap Growth on October 26, 2024 and sell it today you would earn a total of  141.00  from holding Mid Cap Growth or generate 3.6% return on investment over 90 days.

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

Mid Cap Growth  vs.  Longleaf Partners Fund

Mid Cap Growth

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Longleaf Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Longleaf Partners Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Longleaf Partners 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 Longleaf Partners

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

The idea behind Mid Cap Growth and Longleaf Partners 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.