Correlation Between The Midcap and The Growth

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

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

Diversification Opportunities for The Midcap and The Growth

0.97

Correlation Coefficient

The Midcap  The Growth

Almost no diversification

The 3 months correlation between The and The is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding The Midcap Growth and The Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund and The 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 The Midcap Growth are associated (or correlated) with The Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund has no effect on the direction of The Midcap i.e., The Midcap and The Growth go up and down completely randomly.

Pair Corralation between The Midcap and The Growth

Assuming the 90 days horizon The Midcap is expected to generate 1.01 times less return on investment than The Growth. But when comparing it to its historical volatility, The Midcap Growth is 1.1 times less risky than The Growth. It trades about 0.22 of its potential returns per unit of risk. The Growth Fund is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  5,041  in The Growth Fund on September 2, 2024 and sell it today you would earn a total of  598.00  from holding The Growth Fund or generate 11.86% return on investment over 90 days.

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

The Midcap Growth  vs.  The Growth Fund

Midcap Growth

Risk-Adjusted Performance

17 of 100

Solid

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

Growth Fund

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Growth Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, The Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with The Midcap and The Growth

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

The idea behind The Midcap Growth and The Growth 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 Commodity Directory module to find actively traded commodities issued by global exchanges.