Correlation Between Mid Cap and Sentinel Balanced

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

Diversification Opportunities for Mid Cap and Sentinel Balanced

0.84

Correlation Coefficient

Mid Cap  Sentinel Balanced

Very poor diversification

The 3 months correlation between Mid and Sentinel is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Sentinel Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Balanced 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 Sentinel Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Balanced has no effect on the direction of Mid Cap i.e., Mid Cap and Sentinel Balanced go up and down completely randomly.

Pair Corralation between Mid Cap and Sentinel Balanced

Assuming the 90 days horizon Mid Cap Growth is expected to under-perform the Sentinel Balanced. In addition to that, Mid Cap is 2.69 times more volatile than Sentinel Balanced Fund. It trades about -0.05 of its total potential returns per unit of risk. Sentinel Balanced Fund is currently generating about 0.0 per unit of volatility. If you would invest  2,864  in Sentinel Balanced Fund on November 28, 2024 and sell it today you would lose (3.00) from holding Sentinel Balanced Fund or give up 0.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

Mid Cap Growth  vs.  Sentinel Balanced Fund

Mid Cap Growth

Risk-Adjusted Performance

Very Weak

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

Sentinel Balanced

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Mid Cap Growth and Sentinel Balanced 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.