Correlation Between Midcap Fund and Diversified International

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

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

Diversification Opportunities for Midcap Fund and Diversified International

-0.46

Correlation Coefficient

Midcap Fund  Diversified International

Very good diversification

The 3 months correlation between Midcap and Diversified is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Class and Diversified International Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified International and Midcap Fund 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 Midcap Fund Class are associated (or correlated) with Diversified International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified International has no effect on the direction of Midcap Fund i.e., Midcap Fund and Diversified International go up and down completely randomly.

Pair Corralation between Midcap Fund and Diversified International

Assuming the 90 days horizon Midcap Fund Class is expected to generate 0.93 times more return on investment than Diversified International. However, Midcap Fund Class is 1.07 times less risky than Diversified International. It trades about 0.23 of its potential returns per unit of risk. Diversified International Fund is currently generating about -0.03 per unit of risk. If you would invest  4,208  in Midcap Fund Class on September 3, 2024 and sell it today you would earn a total of  533.00  from holding Midcap Fund Class or generate 12.67% return on investment over 90 days.

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

Midcap Fund Class  vs.  Diversified International Fund

Midcap Fund Class

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund Class are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diversified International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Midcap Fund and Diversified International

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

The idea behind Midcap Fund Class and Diversified International 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.