Correlation Between Smallcap Growth and Mid Cap

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

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

Diversification Opportunities for Smallcap Growth and Mid Cap

0.91

Correlation Coefficient

Smallcap Growth  Mid Cap

Almost no diversification

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

Pair Corralation between Smallcap Growth and Mid Cap

Assuming the 90 days horizon Smallcap Growth is expected to generate 3.09 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Smallcap Growth Fund is 1.35 times less risky than Mid Cap. It trades about 0.16 of its potential returns per unit of risk. Mid Cap Growth is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  1,696  in Mid Cap Growth on September 12, 2024 and sell it today you would earn a total of  683.00  from holding Mid Cap Growth or generate 40.27% return on investment over 90 days.

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

Smallcap Growth Fund  vs.  Mid Cap Growth

Smallcap Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Growth Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly abnormal basic indicators, Smallcap Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mid Cap Growth

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smallcap Growth and Mid Cap

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

The idea behind Smallcap Growth Fund and Mid Cap Growth 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.