Correlation Between Adams Natural and Midcap Fund

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

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

Diversification Opportunities for Adams Natural and Midcap Fund

0.72

Correlation Coefficient

Adams Natural  Midcap Fund

Poor diversification

The 3 months correlation between Adams and Midcap is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Midcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund Class and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund Class has no effect on the direction of Adams Natural i.e., Adams Natural and Midcap Fund go up and down completely randomly.

Pair Corralation between Adams Natural and Midcap Fund

Considering the 90-day investment horizon Adams Natural is expected to generate 1.32 times less return on investment than Midcap Fund. In addition to that, Adams Natural is 1.17 times more volatile than Midcap Fund Class. It trades about 0.1 of its total potential returns per unit of risk. Midcap Fund Class is currently generating about 0.16 per unit of volatility. If you would invest  4,263  in Midcap Fund Class on September 13, 2024 and sell it today you would earn a total of  347.00  from holding Midcap Fund Class or generate 8.14% return on investment over 90 days.

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

Adams Natural Resources  vs.  Midcap Fund Class

Adams Natural Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Midcap Fund Class

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund Class are ranked lower than 12 (%) 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.

Pair Trading with Adams Natural and Midcap Fund

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

The idea behind Adams Natural Resources and Midcap Fund Class 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.