Correlation Between Inverse Mid and Sp 500

Can any of the company-specific risk be diversified away by investing in both Inverse Mid and Sp 500 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 Inverse Mid and Sp 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inverse Mid Cap Strategy and Sp 500 Fund, you can compare the effects of market volatilities on Inverse Mid and Sp 500 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 Inverse Mid with a short position of Sp 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Mid and Sp 500.

Diversification Opportunities for Inverse Mid and Sp 500

-0.94

Correlation Coefficient

Inverse Mid  Sp 500

Pay attention - limited upside

The 3 months correlation between Inverse and RYSPX is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Mid Cap Strategy and Sp 500 Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp 500 Fund and Inverse Mid 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 Inverse Mid Cap Strategy are associated (or correlated) with Sp 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp 500 Fund has no effect on the direction of Inverse Mid i.e., Inverse Mid and Sp 500 go up and down completely randomly.

Pair Corralation between Inverse Mid and Sp 500

Assuming the 90 days horizon Inverse Mid Cap Strategy is expected to under-perform the Sp 500. In addition to that, Inverse Mid is 1.93 times more volatile than Sp 500 Fund. It trades about -0.08 of its total potential returns per unit of risk. Sp 500 Fund is currently generating about 0.12 per unit of volatility. If you would invest  7,325  in Sp 500 Fund on September 14, 2024 and sell it today you would earn a total of  1,849  from holding Sp 500 Fund or generate 25.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Inverse Mid Cap Strategy  vs.  Sp 500 Fund

Inverse Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Mid Cap Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Sp 500 Fund

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sp 500 Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sp 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse Mid and Sp 500

The main advantage of trading using opposite Inverse Mid and Sp 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Mid position performs unexpectedly, Sp 500 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 Sp 500 will offset losses from the drop in Sp 500's long position.

The idea behind Inverse Mid Cap Strategy and Sp 500 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.