Correlation Between Mid Cap and State Farm

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

Diversification Opportunities for Mid Cap and State Farm

-0.16

Correlation Coefficient

Mid Cap  State Farm

Good diversification

The 3 months correlation between Mid and State is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and State Farm Interim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Interim 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 State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Interim has no effect on the direction of Mid Cap i.e., Mid Cap and State Farm go up and down completely randomly.

Pair Corralation between Mid Cap and State Farm

Assuming the 90 days horizon Mid Cap Growth is expected to generate 7.53 times more return on investment than State Farm. However, Mid Cap is 7.53 times more volatile than State Farm Interim. It trades about 0.09 of its potential returns per unit of risk. State Farm Interim is currently generating about 0.07 per unit of risk. If you would invest  3,652  in Mid Cap Growth on October 7, 2024 and sell it today you would earn a total of  531.00  from holding Mid Cap Growth or generate 14.54% return on investment over 90 days.

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

Mid Cap Growth  vs.  State Farm Interim

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.

State Farm Interim

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Farm Interim has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, State Farm 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 State Farm

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

The idea behind Mid Cap Growth and State Farm Interim 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.