Correlation Between Mid Cap and Causeway International

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Causeway International 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 Causeway International 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 Causeway International Value, you can compare the effects of market volatilities on Mid Cap and Causeway International 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 Causeway International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Causeway International.

Diversification Opportunities for Mid Cap and Causeway International

-0.69

Correlation Coefficient

Mid Cap  Causeway International

Excellent diversification

The 3 months correlation between Mid and Causeway is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Causeway International Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Causeway International 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 Causeway International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Causeway International has no effect on the direction of Mid Cap i.e., Mid Cap and Causeway International go up and down completely randomly.

Pair Corralation between Mid Cap and Causeway International

Assuming the 90 days horizon Mid Cap Growth is expected to generate 1.14 times more return on investment than Causeway International. However, Mid Cap is 1.14 times more volatile than Causeway International Value. It trades about 0.32 of its potential returns per unit of risk. Causeway International Value is currently generating about -0.06 per unit of risk. If you would invest  3,719  in Mid Cap Growth on September 5, 2024 and sell it today you would earn a total of  833.00  from holding Mid Cap Growth or generate 22.4% return on investment over 90 days.

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

Mid Cap Growth  vs.  Causeway International Value

Mid Cap Growth

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Causeway International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Causeway International Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Causeway International 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 Causeway International

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

The idea behind Mid Cap Growth and Causeway International Value 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.