Correlation Between Midcap Growth and Growth Fund
Can any of the company-specific risk be diversified away by investing in both Midcap Growth and Growth Fund 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 Midcap Growth and Growth Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Midcap Growth and The Growth Fund, you can compare the effects of market volatilities on Midcap Growth and Growth Fund 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 Midcap Growth with a short position of Growth Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and Growth Fund.
Diversification Opportunities for Midcap Growth and Growth Fund
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Midcap and Growth is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding The Midcap Growth and The Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund and Midcap Growth 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 The Midcap Growth are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund has no effect on the direction of Midcap Growth i.e., Midcap Growth and Growth Fund go up and down completely randomly.
Pair Corralation between Midcap Growth and Growth Fund
Assuming the 90 days horizon Midcap Growth is expected to generate 2.72 times less return on investment than Growth Fund. But when comparing it to its historical volatility, The Midcap Growth is 1.04 times less risky than Growth Fund. It trades about 0.03 of its potential returns per unit of risk. The Growth Fund is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,294 in The Growth Fund on September 20, 2024 and sell it today you would earn a total of 1,845 from holding The Growth Fund or generate 56.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
The Midcap Growth vs. The Growth Fund
Performance |
| Timeline |
| Midcap Growth |
| Growth Fund |
Midcap Growth and Growth Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Midcap Growth and Growth Fund
The main advantage of trading using opposite Midcap Growth and Growth Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Midcap Growth position performs unexpectedly, Growth Fund 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 Growth Fund will offset losses from the drop in Growth Fund's long position.| Midcap Growth vs. T Rowe Price | Midcap Growth vs. Bbh Intermediate Municipal | Midcap Growth vs. Artisan High Income | Midcap Growth vs. Pace High Yield |
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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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