Correlation Between Mid Cap and Sentinel Low

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

By analyzing existing cross correlation between Mid Cap Growth and Sentinel Low Duration, you can compare the effects of market volatilities on Mid Cap and Sentinel Low 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 Sentinel Low. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Sentinel Low.

Diversification Opportunities for Mid Cap and Sentinel Low

0.85

Correlation Coefficient

Mid Cap  Sentinel Low

Very poor diversification

The 3 months correlation between Mid and Sentinel is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Sentinel Low Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Low Duration 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 Growth are associated (or correlated) with Sentinel Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Low Duration has no effect on the direction of Mid Cap i.e., Mid Cap and Sentinel Low go up and down completely randomly.

Pair Corralation between Mid Cap and Sentinel Low

Assuming the 90 days horizon Mid Cap Growth is expected to generate 13.33 times more return on investment than Sentinel Low. However, Mid Cap is 13.33 times more volatile than Sentinel Low Duration. It trades about 0.29 of its potential returns per unit of risk. Sentinel Low Duration is currently generating about 0.2 per unit of risk. If you would invest  3,441  in Mid Cap Growth on September 2, 2024 and sell it today you would earn a total of  692.00  from holding Mid Cap Growth or generate 20.11% return on investment over 90 days.

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

Mid Cap Growth  vs.  Sentinel Low Duration

Mid Cap Growth

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Sentinel Low Duration

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Low Duration are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Sentinel Low 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 Sentinel Low

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

The idea behind Mid Cap Growth and Sentinel Low Duration 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.