Correlation Between Small Cap and Madison Core
Can any of the company-specific risk be diversified away by investing in both Small Cap and Madison Core 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 Small Cap and Madison Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Stock and Madison E Bond, you can compare the effects of market volatilities on Small Cap and Madison Core 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 Small Cap with a short position of Madison Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Madison Core.
Diversification Opportunities for Small Cap and Madison Core
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Small and Madison is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Madison E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison E Bond and Small 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 Small Cap Stock are associated (or correlated) with Madison Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison E Bond has no effect on the direction of Small Cap i.e., Small Cap and Madison Core go up and down completely randomly.
Pair Corralation between Small Cap and Madison Core
Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Madison Core. In addition to that, Small Cap is 4.22 times more volatile than Madison E Bond. It trades about -0.26 of its total potential returns per unit of risk. Madison E Bond is currently generating about 0.04 per unit of volatility. If you would invest 900.00 in Madison E Bond on December 4, 2024 and sell it today you would earn a total of 6.00 from holding Madison E Bond or generate 0.67% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Small Cap Stock vs. Madison E Bond
Performance |
Timeline |
Small Cap Stock |
Madison E Bond |
Small Cap and Madison Core Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Small Cap and Madison Core
The main advantage of trading using opposite Small Cap and Madison Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Madison Core 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 Madison Core will offset losses from the drop in Madison Core's long position.Small Cap vs. T Rowe Price | Small Cap vs. Old Westbury Short Term | Small Cap vs. John Hancock Variable | Small Cap vs. Transamerica Short Term Bond |
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Check out your portfolio center.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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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