Correlation Between Washington Mutual and Mid Cap

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

By analyzing existing cross correlation between Washington Mutual Investors and Mid Cap Value, you can compare the effects of market volatilities on Washington Mutual and Mid Cap 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 Washington Mutual with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Washington Mutual and Mid Cap.

Diversification Opportunities for Washington Mutual and Mid Cap

0.71

Correlation Coefficient

Washington Mutual  Mid Cap

Poor diversification

The 3 months correlation between Washington and Mid is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Washington Mutual Investors and Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and Washington Mutual 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 Washington Mutual Investors are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Washington Mutual i.e., Washington Mutual and Mid Cap go up and down completely randomly.

Pair Corralation between Washington Mutual and Mid Cap

Assuming the 90 days horizon Washington Mutual Investors is expected to generate 0.93 times more return on investment than Mid Cap. However, Washington Mutual Investors is 1.08 times less risky than Mid Cap. It trades about 0.07 of its potential returns per unit of risk. Mid Cap Value is currently generating about 0.02 per unit of risk. If you would invest  6,307  in Washington Mutual Investors on September 15, 2024 and sell it today you would earn a total of  161.00  from holding Washington Mutual Investors or generate 2.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Washington Mutual Investors  vs.  Mid Cap Value

Washington Mutual

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Mutual Investors are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Washington Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Value

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Washington Mutual and Mid Cap

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

The idea behind Washington Mutual Investors and Mid Cap Value 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.