Correlation Between Mid Cap and Black Oak

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and Black Oak Emerging, you can compare the effects of market volatilities on Mid Cap and Black Oak 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 Mid Cap with a short position of Black Oak. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Black Oak.

Diversification Opportunities for Mid Cap and Black Oak

0.85

Correlation Coefficient

Mid Cap  Black Oak

Very poor diversification

The 3 months correlation between Mid and Black is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Black Oak Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Oak Emerging and Mid Cap 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 Mid Cap 15x Strategy are associated (or correlated) with Black Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Oak Emerging has no effect on the direction of Mid Cap i.e., Mid Cap and Black Oak go up and down completely randomly.

Pair Corralation between Mid Cap and Black Oak

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 1.19 times more return on investment than Black Oak. However, Mid Cap is 1.19 times more volatile than Black Oak Emerging. It trades about 0.15 of its potential returns per unit of risk. Black Oak Emerging is currently generating about 0.09 per unit of risk. If you would invest  12,807  in Mid Cap 15x Strategy on September 13, 2024 and sell it today you would earn a total of  1,699  from holding Mid Cap 15x Strategy or generate 13.27% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Black Oak Emerging

Mid Cap 15x

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Black Oak Emerging

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Black Oak Emerging are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Black Oak may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mid Cap and Black Oak

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

The idea behind Mid Cap 15x Strategy and Black Oak Emerging 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.