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 Municipal Fund and Mid Cap Value, 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
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between High and Mid is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding High Yield Municipal Fund and Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value 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 Municipal 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 Value 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 is expected to generate 5.47 times less return on investment than Mid Cap. But when comparing it to its historical volatility, High Yield Municipal Fund is 2.34 times less risky than Mid Cap. It trades about 0.03 of its potential returns per unit of risk. Mid Cap Value is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,676 in Mid Cap Value on September 12, 2024 and sell it today you would earn a total of 52.00 from holding Mid Cap Value or generate 3.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
High Yield Municipal Fund vs. Mid Cap Value
Performance |
| Timeline |
| High Yield Municipal |
| Mid Cap Value |
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. Vanguard Information Technology | High Yield vs. Mfs Technology Fund | High Yield vs. Hennessy Technology Fund | High Yield vs. Global Technology Portfolio |
| Mid Cap vs. Janus Triton Fund | Mid Cap vs. New World Fund | Mid Cap vs. Fidelity Mid Cap | Mid Cap vs. Jpmorgan Equity Income |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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