Correlation Between Energy Fund and Sp Midcap

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

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

Diversification Opportunities for Energy Fund and Sp Midcap

0.84

Correlation Coefficient

Energy Fund  Sp Midcap

Very poor diversification

The 3 months correlation between Energy and RYBHX is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Class 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 Energy Fund 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 Energy Fund Class 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 Energy Fund i.e., Energy Fund and Sp Midcap go up and down completely randomly.

Pair Corralation between Energy Fund and Sp Midcap

Assuming the 90 days horizon Energy Fund is expected to generate 1.36 times less return on investment than Sp Midcap. But when comparing it to its historical volatility, Energy Fund Class is 1.17 times less risky than Sp Midcap. It trades about 0.32 of its potential returns per unit of risk. Sp Midcap 400 is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  5,636  in Sp Midcap 400 on September 3, 2024 and sell it today you would earn a total of  541.00  from holding Sp Midcap 400 or generate 9.6% return on investment over 90 days.

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

Energy Fund Class  vs.  Sp Midcap 400

Energy Fund Class

Risk-Adjusted Performance

6 of 100

Modest

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

Sp Midcap 400

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Midcap 400 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Sp Midcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Energy Fund and Sp Midcap

The main advantage of trading using opposite Energy Fund and Sp Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Fund 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 Energy Fund Class 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.