Correlation Between Midcap Growth and Value Fund

Can any of the company-specific risk be diversified away by investing in both Midcap Growth and Value Fund 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 Midcap Growth and Value Fund 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 Value Fund, you can compare the effects of market volatilities on Midcap Growth and Value Fund 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 Midcap Growth with a short position of Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and Value Fund.

Diversification Opportunities for Midcap Growth and Value Fund

0.94

Correlation Coefficient

Midcap Growth  Value Fund

Almost no diversification

The 3 months correlation between Midcap and Value is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding The Midcap Growth and The Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund and Midcap 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 The Midcap Growth are associated (or correlated) with Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund has no effect on the direction of Midcap Growth i.e., Midcap Growth and Value Fund go up and down completely randomly.

Pair Corralation between Midcap Growth and Value Fund

Assuming the 90 days horizon The Midcap Growth is expected to generate 1.6 times more return on investment than Value Fund. However, Midcap Growth is 1.6 times more volatile than The Value Fund. It trades about -0.01 of its potential returns per unit of risk. The Value Fund is currently generating about -0.05 per unit of risk. If you would invest  4,691  in The Midcap Growth on September 16, 2024 and sell it today you would lose (95.00) from holding The Midcap Growth or give up 2.03% of portfolio value 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 Value Fund

Midcap Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Midcap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Midcap Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Midcap Growth and Value Fund

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

The idea behind The Midcap Growth and The Value 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.