Correlation Between Federated Mid-cap and Dreyfus Midcap

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

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

Diversification Opportunities for Federated Mid-cap and Dreyfus Midcap

1.0

Correlation Coefficient

Federated Mid-cap  Dreyfus Midcap

No risk reduction

The 3 months correlation between Federated and Dreyfus is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Federated Mid Cap Index 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 Federated Mid-cap 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 Federated Mid Cap Index 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 Federated Mid-cap i.e., Federated Mid-cap and Dreyfus Midcap go up and down completely randomly.

Pair Corralation between Federated Mid-cap and Dreyfus Midcap

Assuming the 90 days horizon Federated Mid-cap is expected to generate 1.02 times less return on investment than Dreyfus Midcap. But when comparing it to its historical volatility, Federated Mid Cap Index is 1.01 times less risky than Dreyfus Midcap. It trades about 0.19 of its potential returns per unit of risk. Dreyfus Midcap Index is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,054  in Dreyfus Midcap Index on September 3, 2024 and sell it today you would earn a total of  370.00  from holding Dreyfus Midcap Index or generate 12.12% return on investment over 90 days.

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

Federated Mid Cap Index  vs.  Dreyfus Midcap Index

Federated Mid Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Mid Cap 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, Federated Mid-cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 fundamental indicators, Dreyfus Midcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Federated Mid-cap and Dreyfus Midcap

The main advantage of trading using opposite Federated Mid-cap and Dreyfus Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Mid-cap 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 Federated Mid Cap Index 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..