Correlation Between Inverse Dow and Sp Midcap

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

By analyzing existing cross correlation between Inverse Dow 2x and Sp Midcap 400, you can compare the effects of market volatilities on Inverse Dow and Sp Midcap 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 Dow with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Dow and Sp Midcap.

Diversification Opportunities for Inverse Dow and Sp Midcap

-0.91

Correlation Coefficient

Inverse Dow  Sp Midcap

Pay attention - limited upside

The 3 months correlation between Inverse and RYAVX is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Dow 2x and Sp Midcap 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap 400 and Inverse Dow 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 Dow 2x are associated (or correlated) with Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap 400 has no effect on the direction of Inverse Dow i.e., Inverse Dow and Sp Midcap go up and down completely randomly.

Pair Corralation between Inverse Dow and Sp Midcap

Assuming the 90 days horizon Inverse Dow 2x is expected to under-perform the Sp Midcap. In addition to that, Inverse Dow is 1.35 times more volatile than Sp Midcap 400. It trades about -0.25 of its total potential returns per unit of risk. Sp Midcap 400 is currently generating about 0.29 per unit of volatility. If you would invest  7,656  in Sp Midcap 400 on August 30, 2024 and sell it today you would earn a total of  691.00  from holding Sp Midcap 400 or generate 9.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Inverse Dow 2x  vs.  Sp Midcap 400

Inverse Dow 2x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Dow 2x has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Sp Midcap 400

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Midcap 400 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sp Midcap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Inverse Dow and Sp Midcap

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

The idea behind Inverse Dow 2x and Sp Midcap 400 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.