Correlation Between Madison Investors and Common Stock

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

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

Diversification Opportunities for Madison Investors and Common Stock

0.98

Correlation Coefficient

Madison Investors  Common Stock

Almost no diversification

The 3 months correlation between Madison and Common is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Madison Investors Fund and Common Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Common Stock and Madison Investors 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 Madison Investors Fund are associated (or correlated) with Common Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Common Stock has no effect on the direction of Madison Investors i.e., Madison Investors and Common Stock go up and down completely randomly.

Pair Corralation between Madison Investors and Common Stock

Assuming the 90 days horizon Madison Investors Fund is expected to generate 0.72 times more return on investment than Common Stock. However, Madison Investors Fund is 1.39 times less risky than Common Stock. It trades about 0.13 of its potential returns per unit of risk. Common Stock Fund is currently generating about 0.08 per unit of risk. If you would invest  2,565  in Madison Investors Fund on September 4, 2024 and sell it today you would earn a total of  681.00  from holding Madison Investors Fund or generate 26.55% return on investment over 90 days.

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

Madison Investors Fund  vs.  Common Stock Fund

Madison Investors

Risk-Adjusted Performance

13 of 100

Good

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

Common Stock

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Common Stock Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Common Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Madison Investors and Common Stock

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

The idea behind Madison Investors Fund and Common Stock 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.