Correlation Between International Small and Midcap Value
Can any of the company-specific risk be diversified away by investing in both International Small and Midcap Value 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 International Small and Midcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Small Pany and Midcap Value Fund, you can compare the effects of market volatilities on International Small and Midcap Value 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 International Small with a short position of Midcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Small and Midcap Value.
Diversification Opportunities for International Small and Midcap Value
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between International and Midcap is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding International Small Pany and Midcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Value and International 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 International Small Pany are associated (or correlated) with Midcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Value has no effect on the direction of International Small i.e., International Small and Midcap Value go up and down completely randomly.
Pair Corralation between International Small and Midcap Value
Assuming the 90 days horizon International Small is expected to generate 1.1 times less return on investment than Midcap Value. But when comparing it to its historical volatility, International Small Pany is 1.02 times less risky than Midcap Value. It trades about 0.04 of its potential returns per unit of risk. Midcap Value Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,642 in Midcap Value Fund on September 3, 2024 and sell it today you would earn a total of 306.00 from holding Midcap Value Fund or generate 18.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Small Pany vs. Midcap Value Fund
Performance |
| Timeline |
| International Small Pany |
| Midcap Value |
International Small and Midcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Small and Midcap Value
The main advantage of trading using opposite International Small and Midcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Small position performs unexpectedly, Midcap Value 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 Midcap Value will offset losses from the drop in Midcap Value's long position.The idea behind International Small Pany and Midcap Value 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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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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