Correlation Between Global Strategy and Mid Cap

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

By analyzing existing cross correlation between Global Strategy Fund and Mid Cap Strategic, you can compare the effects of market volatilities on Global Strategy 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 Global Strategy with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Strategy and Mid Cap.

Diversification Opportunities for Global Strategy and Mid Cap

0.69

Correlation Coefficient

Global Strategy  Mid Cap

Poor diversification

The 3 months correlation between Global and Mid is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Global Strategy Fund and Mid Cap Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Strategic and Global Strategy 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 Global Strategy 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 Strategic has no effect on the direction of Global Strategy i.e., Global Strategy and Mid Cap go up and down completely randomly.

Pair Corralation between Global Strategy and Mid Cap

Assuming the 90 days horizon Global Strategy is expected to generate 4.18 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Global Strategy Fund is 2.07 times less risky than Mid Cap. It trades about 0.13 of its potential returns per unit of risk. Mid Cap Strategic is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,906  in Mid Cap Strategic on September 2, 2024 and sell it today you would earn a total of  294.00  from holding Mid Cap Strategic or generate 15.42% return on investment over 90 days.

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

Global Strategy Fund  vs.  Mid Cap Strategic

Global Strategy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Strategy Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Strategic

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Strategic are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Strategy and Mid Cap

The main advantage of trading using opposite Global Strategy and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Strategy 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.

The idea behind Global Strategy Fund and Mid Cap Strategic 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.