Correlation Between Mid Cap and Inflation Protected

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

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

Diversification Opportunities for Mid Cap and Inflation Protected

-0.62

Correlation Coefficient

Mid Cap  Inflation Protected

Excellent diversification

The 3 months correlation between Mid and Inflation is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Index and Inflation Protected Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protected 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 Index are associated (or correlated) with Inflation Protected. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protected has no effect on the direction of Mid Cap i.e., Mid Cap and Inflation Protected go up and down completely randomly.

Pair Corralation between Mid Cap and Inflation Protected

Assuming the 90 days horizon Mid Cap Index is expected to generate 3.46 times more return on investment than Inflation Protected. However, Mid Cap is 3.46 times more volatile than Inflation Protected Fund. It trades about 0.21 of its potential returns per unit of risk. Inflation Protected Fund is currently generating about -0.07 per unit of risk. If you would invest  2,652  in Mid Cap Index on September 5, 2024 and sell it today you would earn a total of  335.00  from holding Mid Cap Index or generate 12.63% return on investment over 90 days.

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

Mid Cap Index  vs.  Inflation Protected Fund

Mid Cap Index

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Index are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Inflation Protected

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inflation Protected Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inflation Protected 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 Inflation Protected

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

The idea behind Mid Cap Index and Inflation Protected Fund 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.