Correlation Between Madison Investors and Madison Diversified

Can any of the company-specific risk be diversified away by investing in both Madison Investors and Madison Diversified 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 Madison Diversified 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 Madison Diversified Income, you can compare the effects of market volatilities on Madison Investors and Madison Diversified 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 Madison Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Investors and Madison Diversified.

Diversification Opportunities for Madison Investors and Madison Diversified

0.79

Correlation Coefficient

Madison Investors  Madison Diversified

Poor diversification

The 3 months correlation between Madison and Madison is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Madison Investors Fund and Madison Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Diversified 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 Madison Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Diversified has no effect on the direction of Madison Investors i.e., Madison Investors and Madison Diversified go up and down completely randomly.

Pair Corralation between Madison Investors and Madison Diversified

Assuming the 90 days horizon Madison Investors Fund is expected to generate 3.18 times more return on investment than Madison Diversified. However, Madison Investors is 3.18 times more volatile than Madison Diversified Income. It trades about 0.1 of its potential returns per unit of risk. Madison Diversified Income is currently generating about 0.01 per unit of risk. If you would invest  3,014  in Madison Investors Fund on September 15, 2024 and sell it today you would earn a total of  149.00  from holding Madison Investors Fund or generate 4.94% return on investment over 90 days.

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

Madison Investors Fund  vs.  Madison Diversified Income

Madison Investors

Risk-Adjusted Performance

8 of 100

OK

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

Madison Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Madison Investors and Madison Diversified

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

The idea behind Madison Investors Fund and Madison Diversified Income 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.