Correlation Between Income Growth and Mid Cap

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

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

Diversification Opportunities for Income Growth and Mid Cap

0.91

Correlation Coefficient

Income Growth  Mid Cap

Almost no diversification

The 3 months correlation between Income and Mid is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund 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 Income Growth 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 Income Growth Fund 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 Income Growth i.e., Income Growth and Mid Cap go up and down completely randomly.

Pair Corralation between Income Growth and Mid Cap

Assuming the 90 days horizon Income Growth Fund is expected to generate 1.06 times more return on investment than Mid Cap. However, Income Growth is 1.06 times more volatile than Mid Cap Value. It trades about 0.17 of its potential returns per unit of risk. Mid Cap Value is currently generating about 0.13 per unit of risk. If you would invest  3,675  in Income Growth Fund on September 1, 2024 and sell it today you would earn a total of  273.00  from holding Income Growth Fund or generate 7.43% return on investment over 90 days.

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

Income Growth Fund  vs.  Mid Cap Value

Income Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Income Growth Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Income Growth may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Mid Cap Value

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 9 (%) 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 Income Growth and Mid Cap

The main advantage of trading using opposite Income Growth and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Growth 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 Income Growth Fund 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.