Correlation Between Dreyfus Bond and Dreyfus Midcap

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

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

Diversification Opportunities for Dreyfus Bond and Dreyfus Midcap

-0.68

Correlation Coefficient

Dreyfus Bond  Dreyfus Midcap

Excellent diversification

The 3 months correlation between Dreyfus and Dreyfus is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dreyfus Bond Market and Dreyfus Midcap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Midcap Index and Dreyfus Bond 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 Dreyfus Bond Market are associated (or correlated) with Dreyfus Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Midcap Index has no effect on the direction of Dreyfus Bond i.e., Dreyfus Bond and Dreyfus Midcap go up and down completely randomly.

Pair Corralation between Dreyfus Bond and Dreyfus Midcap

Assuming the 90 days horizon Dreyfus Bond is expected to generate 10.83 times less return on investment than Dreyfus Midcap. But when comparing it to its historical volatility, Dreyfus Bond Market is 3.21 times less risky than Dreyfus Midcap. It trades about 0.1 of its potential returns per unit of risk. Dreyfus Midcap Index is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  3,164  in Dreyfus Midcap Index on September 1, 2024 and sell it today you would earn a total of  277.00  from holding Dreyfus Midcap Index or generate 8.75% return on investment over 90 days.

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

Dreyfus Bond Market  vs.  Dreyfus Midcap Index

Dreyfus Bond Market

Risk-Adjusted Performance

0 of 100

Very Weak

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

Dreyfus Midcap Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dreyfus Midcap Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dreyfus Midcap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Dreyfus Bond and Dreyfus Midcap

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

The idea behind Dreyfus Bond Market and Dreyfus Midcap Index 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.