Correlation Between Mid Cap and Growth Income

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

By analyzing existing cross correlation between Mid Cap Strategic and Growth Income Fund, you can compare the effects of market volatilities on Mid Cap and Growth Income 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 Growth Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Growth Income.

Diversification Opportunities for Mid Cap and Growth Income

0.98

Correlation Coefficient

Mid Cap  Growth Income

Almost no diversification

The 3 months correlation between Mid and Growth is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Strategic and Growth Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Income 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 Strategic are associated (or correlated) with Growth Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Income has no effect on the direction of Mid Cap i.e., Mid Cap and Growth Income go up and down completely randomly.

Pair Corralation between Mid Cap and Growth Income

Assuming the 90 days horizon Mid Cap Strategic is expected to generate 1.23 times more return on investment than Growth Income. However, Mid Cap is 1.23 times more volatile than Growth Income Fund. It trades about 0.26 of its potential returns per unit of risk. Growth Income Fund is currently generating about 0.22 per unit of risk. If you would invest  1,901  in Mid Cap Strategic on September 4, 2024 and sell it today you would earn a total of  295.00  from holding Mid Cap Strategic or generate 15.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Mid Cap Strategic  vs.  Growth Income Fund

Mid Cap Strategic

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Strategic are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Growth Income

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Income Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Growth Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mid Cap and Growth Income

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

The idea behind Mid Cap Strategic and Growth Income 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.