Correlation Between Madison Small and Madison Covered
Can any of the company-specific risk be diversified away by investing in both Madison Small and Madison Covered 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 Madison Small and Madison Covered into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Madison Small Cap and Madison Ered Call, you can compare the effects of market volatilities on Madison Small and Madison Covered 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 Madison Small with a short position of Madison Covered. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Small and Madison Covered.
Diversification Opportunities for Madison Small and Madison Covered
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Madison and Madison is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Madison Small Cap and Madison Ered Call in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Ered Call and Madison Small 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 Madison Small Cap are associated (or correlated) with Madison Covered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Ered Call has no effect on the direction of Madison Small i.e., Madison Small and Madison Covered go up and down completely randomly.
Pair Corralation between Madison Small and Madison Covered
Assuming the 90 days horizon Madison Small Cap is expected to generate 2.65 times more return on investment than Madison Covered. However, Madison Small is 2.65 times more volatile than Madison Ered Call. It trades about 0.02 of its potential returns per unit of risk. Madison Ered Call is currently generating about 0.02 per unit of risk. If you would invest 997.00 in Madison Small Cap on December 11, 2024 and sell it today you would earn a total of 56.00 from holding Madison Small Cap or generate 5.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.67% |
| Values | Daily Returns |
Madison Small Cap vs. Madison Ered Call
Performance |
| Timeline |
| Madison Small Cap |
| Madison Ered Call |
Madison Small and Madison Covered Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Madison Small and Madison Covered
The main advantage of trading using opposite Madison Small and Madison Covered positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Small position performs unexpectedly, Madison Covered 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 Madison Covered will offset losses from the drop in Madison Covered's long position.| Madison Small vs. Eaton Vance Worldwide | ||
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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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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