Correlation Between Mid Cap and High Income
Can any of the company-specific risk be diversified away by investing in both Mid Cap and High Income 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 High Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Value and High Income Fund, you can compare the effects of market volatilities on Mid Cap and High Income 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 High Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and High Income.
Diversification Opportunities for Mid Cap and High Income
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Mid and High is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and High Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Income Fund 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 Value are associated (or correlated) with High Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Income Fund has no effect on the direction of Mid Cap i.e., Mid Cap and High Income go up and down completely randomly.
Pair Corralation between Mid Cap and High Income
Assuming the 90 days horizon Mid Cap Value is expected to generate 3.57 times more return on investment than High Income. However, Mid Cap is 3.57 times more volatile than High Income Fund. It trades about 0.13 of its potential returns per unit of risk. High Income Fund is currently generating about 0.23 per unit of risk. If you would invest 1,567 in Mid Cap Value on August 24, 2024 and sell it today you would earn a total of 187.00 from holding Mid Cap Value or generate 11.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Value vs. High Income Fund
Performance |
| Timeline |
| Mid Cap Value |
| High Income Fund |
Mid Cap and High Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and High Income
The main advantage of trading using opposite Mid Cap and High Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, High Income 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 High Income will offset losses from the drop in High Income's long position.| Mid Cap vs. Mid Cap Value | Mid Cap vs. Mid Cap Index | Mid Cap vs. Mid Cap Spdr | Mid Cap vs. Mid Cap Strategic |
| High Income vs. Blackrock High Yield | High Income vs. HUMANA INC | High Income vs. Aquagold International | High Income vs. Barloworld Ltd ADR |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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