Correlation Between Midcap Growth and Income Fund

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

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

Diversification Opportunities for Midcap Growth and Income Fund

-0.72

Correlation Coefficient

Midcap Growth  Income Fund

Pay attention - limited upside

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

Pair Corralation between Midcap Growth and Income Fund

Assuming the 90 days horizon Midcap Growth Fund is expected to generate 3.02 times more return on investment than Income Fund. However, Midcap Growth is 3.02 times more volatile than Income Fund Class. It trades about 0.39 of its potential returns per unit of risk. Income Fund Class is currently generating about -0.03 per unit of risk. If you would invest  1,021  in Midcap Growth Fund on September 2, 2024 and sell it today you would earn a total of  270.00  from holding Midcap Growth Fund or generate 26.44% return on investment over 90 days.

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

Midcap Growth Fund  vs.  Income Fund Class

Midcap Growth

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Growth Fund are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Midcap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Income Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Income Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Income Fund 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 Growth and Income Fund

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

The idea behind Midcap Growth Fund and Income 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.