Correlation Between Thompson Largecap and Thompson Midcap

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

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

Diversification Opportunities for Thompson Largecap and Thompson Midcap

0.99

Correlation Coefficient

Thompson Largecap  Thompson Midcap

No risk reduction

The 3 months correlation between Thompson and Thompson is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Thompson Largecap Fund and Thompson Midcap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thompson Midcap and Thompson Largecap 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 Thompson Largecap Fund are associated (or correlated) with Thompson Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thompson Midcap has no effect on the direction of Thompson Largecap i.e., Thompson Largecap and Thompson Midcap go up and down completely randomly.

Pair Corralation between Thompson Largecap and Thompson Midcap

Assuming the 90 days horizon Thompson Largecap Fund is expected to under-perform the Thompson Midcap. In addition to that, Thompson Largecap is 1.19 times more volatile than Thompson Midcap Fund. It trades about -0.13 of its total potential returns per unit of risk. Thompson Midcap Fund is currently generating about -0.13 per unit of volatility. If you would invest  1,518  in Thompson Midcap Fund on December 1, 2024 and sell it today you would lose (153.00) from holding Thompson Midcap Fund or give up 10.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Thompson Largecap Fund  vs.  Thompson Midcap Fund

Thompson Largecap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thompson Largecap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Thompson Midcap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thompson Midcap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Thompson Largecap and Thompson Midcap

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

The idea behind Thompson Largecap Fund and Thompson Midcap 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.