Correlation Between Mid Cap and Equity Growth

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Equity Growth 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 Equity Growth 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 Equity Growth Strategy, you can compare the effects of market volatilities on Mid Cap and Equity Growth 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 Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Equity Growth.

Diversification Opportunities for Mid Cap and Equity Growth

0.88

Correlation Coefficient

Mid Cap  Equity Growth

Very poor diversification

The 3 months correlation between Mid and Equity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy 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 Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of Mid Cap i.e., Mid Cap and Equity Growth go up and down completely randomly.

Pair Corralation between Mid Cap and Equity Growth

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to generate 2.49 times more return on investment than Equity Growth. However, Mid Cap is 2.49 times more volatile than Equity Growth Strategy. It trades about 0.11 of its potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.09 per unit of risk. If you would invest  12,932  in Mid Cap 15x Strategy on September 16, 2024 and sell it today you would earn a total of  1,246  from holding Mid Cap 15x Strategy or generate 9.64% 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.  Equity Growth Strategy

Mid Cap 15x

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Equity Growth Strategy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Growth Strategy are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Equity Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and Equity Growth

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

The idea behind Mid Cap 15x Strategy and Equity Growth Strategy 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.