Correlation Between New Perspective and Commerce Midcap

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

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

Diversification Opportunities for New Perspective and Commerce Midcap

0.74

Correlation Coefficient

New Perspective  Commerce Midcap

Poor diversification

The 3 months correlation between New and Commerce is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding New Perspective Fund and Commerce Midcap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Midcap Value and New Perspective 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 New Perspective Fund are associated (or correlated) with Commerce Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Midcap Value has no effect on the direction of New Perspective i.e., New Perspective and Commerce Midcap go up and down completely randomly.

Pair Corralation between New Perspective and Commerce Midcap

Assuming the 90 days horizon New Perspective is expected to generate 1.71 times less return on investment than Commerce Midcap. But when comparing it to its historical volatility, New Perspective Fund is 1.08 times less risky than Commerce Midcap. It trades about 0.1 of its potential returns per unit of risk. Commerce Midcap Value is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,483  in Commerce Midcap Value on September 2, 2024 and sell it today you would earn a total of  208.00  from holding Commerce Midcap Value or generate 8.38% return on investment over 90 days.

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

New Perspective Fund  vs.  Commerce Midcap Value

New Perspective

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Perspective Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, New Perspective is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Commerce Midcap Value

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Midcap Value are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Commerce Midcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New Perspective and Commerce Midcap

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

The idea behind New Perspective Fund and Commerce Midcap 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.