Correlation Between Walden Midcap and Walden Equity

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

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

Diversification Opportunities for Walden Midcap and Walden Equity

0.95

Correlation Coefficient

Walden Midcap  Walden Equity

Almost no diversification

The 3 months correlation between WALDEN and Walden is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Walden Midcap Fund and Walden Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walden Equity and Walden 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 Walden Midcap Fund are associated (or correlated) with Walden Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walden Equity has no effect on the direction of Walden Midcap i.e., Walden Midcap and Walden Equity go up and down completely randomly.

Pair Corralation between Walden Midcap and Walden Equity

Assuming the 90 days horizon Walden Midcap is expected to generate 1.01 times less return on investment than Walden Equity. In addition to that, Walden Midcap is 1.2 times more volatile than Walden Equity Fund. It trades about 0.08 of its total potential returns per unit of risk. Walden Equity Fund is currently generating about 0.09 per unit of volatility. If you would invest  3,096  in Walden Equity Fund on August 31, 2024 and sell it today you would earn a total of  775.00  from holding Walden Equity Fund or generate 25.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.73%
Values	Daily Returns

Walden Midcap Fund  vs.  Walden Equity Fund

Walden Midcap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walden Midcap Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Walden Midcap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Walden Equity

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walden Equity Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Walden Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Walden Midcap and Walden Equity

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

The idea behind Walden Midcap Fund and Walden Equity 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.