Correlation Between Growth Fund and Midcap Growth

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

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

Diversification Opportunities for Growth Fund and Midcap Growth

0.94

Correlation Coefficient

Growth Fund  Midcap Growth

Almost no diversification

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

Pair Corralation between Growth Fund and Midcap Growth

Assuming the 90 days horizon The Growth Fund is expected to generate 0.99 times more return on investment than Midcap Growth. However, The Growth Fund is 1.01 times less risky than Midcap Growth. It trades about 0.03 of its potential returns per unit of risk. The Midcap Growth is currently generating about -0.01 per unit of risk. If you would invest  5,152  in The Growth Fund on September 16, 2024 and sell it today you would earn a total of  117.00  from holding The Growth Fund or generate 2.27% return on investment over 90 days.

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

The Growth Fund  vs.  The Midcap Growth

Growth Fund

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Growth Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Growth Fund and Midcap Growth

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

The idea behind The Growth Fund and The Midcap Growth 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.