Correlation Between Energy Services and Sp Midcap

Can any of the company-specific risk be diversified away by investing in both Energy Services 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 Services 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 Services Fund and Sp Midcap 400, you can compare the effects of market volatilities on Energy Services 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 Services with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Services and Sp Midcap.

Diversification Opportunities for Energy Services and Sp Midcap

0.74

Correlation Coefficient

Energy Services  Sp Midcap

Poor diversification

The 3 months correlation between Energy and RYBHX is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services Fund 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 Services 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 Services Fund 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 Services i.e., Energy Services and Sp Midcap go up and down completely randomly.

Pair Corralation between Energy Services and Sp Midcap

Assuming the 90 days horizon Energy Services Fund is expected to under-perform the Sp Midcap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Energy Services Fund is 1.33 times less risky than Sp Midcap. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Sp Midcap 400 is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,636  in Sp Midcap 400 on September 29, 2024 and sell it today you would lose (610.00) from holding Sp Midcap 400 or give up 10.82% of portfolio value over 90 days.

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

Energy Services Fund  vs.  Sp Midcap 400

Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Services Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Energy Services 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

0 of 100

Very Weak

Over the last 90 days Sp Midcap 400 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Energy Services and Sp Midcap

The main advantage of trading using opposite Energy Services and Sp Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Services 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 Services Fund 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.