Correlation Between Mid Capitalization and Cref Inflation

Can any of the company-specific risk be diversified away by investing in both Mid Capitalization and Cref Inflation 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 Capitalization and Cref Inflation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mid Capitalization Portfolio and Cref Inflation Linked Bond, you can compare the effects of market volatilities on Mid Capitalization and Cref Inflation 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 Capitalization with a short position of Cref Inflation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Capitalization and Cref Inflation.

Diversification Opportunities for Mid Capitalization and Cref Inflation

-0.52

Correlation Coefficient

Mid Capitalization  Cref Inflation

Excellent diversification

The 3 months correlation between Mid and Cref is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Mid Capitalization Portfolio and Cref Inflation Linked Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cref Inflation Linked and Mid Capitalization 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 Capitalization Portfolio are associated (or correlated) with Cref Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cref Inflation Linked has no effect on the direction of Mid Capitalization i.e., Mid Capitalization and Cref Inflation go up and down completely randomly.

Pair Corralation between Mid Capitalization and Cref Inflation

Assuming the 90 days horizon Mid Capitalization Portfolio is expected to under-perform the Cref Inflation. In addition to that, Mid Capitalization is 12.1 times more volatile than Cref Inflation Linked Bond. It trades about -0.01 of its total potential returns per unit of risk. Cref Inflation Linked Bond is currently generating about -0.06 per unit of volatility. If you would invest  8,624  in Cref Inflation Linked Bond on September 13, 2024 and sell it today you would lose (65.00) from holding Cref Inflation Linked Bond or give up 0.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Mid Capitalization Portfolio  vs.  Cref Inflation Linked Bond

Mid Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

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

Cref Inflation Linked

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cref Inflation Linked Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Cref Inflation 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 Capitalization and Cref Inflation

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

The idea behind Mid Capitalization Portfolio and Cref Inflation Linked Bond 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.