Correlation Between Mid-cap Value and Large Cap

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

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

Diversification Opportunities for Mid-cap Value and Large Cap

0.91

Correlation Coefficient

Mid-cap Value  Large Cap

Almost no diversification

The 3 months correlation between Mid-cap and Large is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value Profund and Large Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Mid-cap Value 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 Mid Cap Value Profund are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Growth has no effect on the direction of Mid-cap Value i.e., Mid-cap Value and Large Cap go up and down completely randomly.

Pair Corralation between Mid-cap Value and Large Cap

Assuming the 90 days horizon Mid Cap Value Profund is expected to generate 1.14 times more return on investment than Large Cap. However, Mid-cap Value is 1.14 times more volatile than Large Cap Growth Profund. It trades about 0.25 of its potential returns per unit of risk. Large Cap Growth Profund is currently generating about 0.08 per unit of risk. If you would invest  8,915  in Mid Cap Value Profund on August 31, 2024 and sell it today you would earn a total of  624.00  from holding Mid Cap Value Profund or generate 7.0% return on investment over 90 days.

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

Mid Cap Value Profund  vs.  Large Cap Growth Profund

Mid Cap Value

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value Profund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid-cap Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Large Cap Growth

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Mid-cap Value and Large Cap

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

The idea behind Mid Cap Value Profund and Large Cap Growth Profund 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.