Correlation Between Thompson Midcap and Thompson Largecap

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

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

Diversification Opportunities for Thompson Midcap and Thompson Largecap

0.99

Correlation Coefficient

Thompson Midcap  Thompson Largecap

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 Midcap Fund and Thompson Largecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thompson Largecap and Thompson Midcap 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 Midcap Fund are associated (or correlated) with Thompson Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thompson Largecap has no effect on the direction of Thompson Midcap i.e., Thompson Midcap and Thompson Largecap go up and down completely randomly.

Pair Corralation between Thompson Midcap and Thompson Largecap

Assuming the 90 days horizon Thompson Midcap is expected to generate 1.01 times less return on investment than Thompson Largecap. In addition to that, Thompson Midcap is 1.21 times more volatile than Thompson Largecap Fund. It trades about 0.17 of its total potential returns per unit of risk. Thompson Largecap Fund is currently generating about 0.21 per unit of volatility. If you would invest  10,494  in Thompson Largecap Fund on September 3, 2024 and sell it today you would earn a total of  1,146  from holding Thompson Largecap Fund or generate 10.92% return on investment over 90 days.

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

Thompson Midcap Fund  vs.  Thompson Largecap Fund

Thompson Midcap

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thompson Midcap Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Thompson Midcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Thompson Largecap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thompson Largecap Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Thompson Largecap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Thompson Midcap and Thompson Largecap

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

The idea behind Thompson Midcap Fund and Thompson Largecap 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.