Correlation Between High Yield and Mid Cap
Can any of the company-specific risk be diversified away by investing in both High Yield and Mid Cap 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 High Yield and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between High Yield Fund and Mid Cap Growth, you can compare the effects of market volatilities on High Yield and Mid Cap 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 High Yield with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Yield and Mid Cap.
Diversification Opportunities for High Yield and Mid Cap
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between High and Mid is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Fund and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth and High Yield 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 High Yield Fund are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Growth has no effect on the direction of High Yield i.e., High Yield and Mid Cap go up and down completely randomly.
Pair Corralation between High Yield and Mid Cap
Assuming the 90 days horizon High Yield Fund is expected to under-perform the Mid Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, High Yield Fund is 7.29 times less risky than Mid Cap. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Mid Cap Growth is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,546 in Mid Cap Growth on September 25, 2024 and sell it today you would earn a total of 253.00 from holding Mid Cap Growth or generate 7.13% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.44% |
Values | Daily Returns |
High Yield Fund vs. Mid Cap Growth
Performance |
Timeline |
High Yield Fund |
Mid Cap Growth |
High Yield and Mid Cap Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with High Yield and Mid Cap
The main advantage of trading using opposite High Yield and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Yield position performs unexpectedly, Mid Cap 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 Mid Cap will offset losses from the drop in Mid Cap's long position.High Yield vs. Rbb Fund | High Yield vs. Nasdaq 100 Index Fund | High Yield vs. Volumetric Fund Volumetric | High Yield vs. L Abbett Fundamental |
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Check out your portfolio center.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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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