Correlation Between Madison Investors and Broadview Opportunity

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

Diversification Opportunities for Madison Investors and Broadview Opportunity

0.97

Correlation Coefficient

Madison Investors  Broadview Opportunity

Almost no diversification

The 3 months correlation between Madison and Broadview is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Madison Investors Fund and Broadview Opportunity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadview Opportunity 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 Broadview Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadview Opportunity has no effect on the direction of Madison Investors i.e., Madison Investors and Broadview Opportunity go up and down completely randomly.

Pair Corralation between Madison Investors and Broadview Opportunity

Assuming the 90 days horizon Madison Investors is expected to generate 1.71 times less return on investment than Broadview Opportunity. But when comparing it to its historical volatility, Madison Investors Fund is 1.34 times less risky than Broadview Opportunity. It trades about 0.19 of its potential returns per unit of risk. Broadview Opportunity Fund is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,131  in Broadview Opportunity Fund on September 5, 2024 and sell it today you would earn a total of  185.00  from holding Broadview Opportunity Fund or generate 16.36% 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.  Broadview Opportunity Fund

Madison Investors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Investors Fund are ranked lower than 14 (%) 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.

Broadview Opportunity

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Broadview Opportunity Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Broadview Opportunity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Investors and Broadview Opportunity

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

The idea behind Madison Investors Fund and Broadview Opportunity 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.