Correlation Between Mid Cap and Nova Fund

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Nova 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 Mid Cap and Nova Fund 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 Nova Fund Class, you can compare the effects of market volatilities on Mid Cap and Nova 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 Mid Cap with a short position of Nova Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Nova Fund.

Diversification Opportunities for Mid Cap and Nova Fund

0.83

Correlation Coefficient

Mid Cap  Nova Fund

Very poor diversification

The 3 months correlation between Mid and Nova is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Nova Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Fund Class 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 Nova Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Fund Class has no effect on the direction of Mid Cap i.e., Mid Cap and Nova Fund go up and down completely randomly.

Pair Corralation between Mid Cap and Nova Fund

Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the Nova Fund. In addition to that, Mid Cap is 1.08 times more volatile than Nova Fund Class. It trades about -0.37 of its total potential returns per unit of risk. Nova Fund Class is currently generating about -0.05 per unit of volatility. If you would invest  13,610  in Nova Fund Class on September 30, 2024 and sell it today you would lose (226.00) from holding Nova Fund Class or give up 1.66% of portfolio value over 90 days.

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

Mid Cap 15x Strategy  vs.  Nova Fund Class

Mid Cap 15x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Cap 15x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nova Fund Class

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Fund Class are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Nova 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 Mid Cap and Nova Fund

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

The idea behind Mid Cap 15x Strategy and Nova 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 Global Correlations module to find global opportunities by holding instruments from different markets.