Correlation Between Midcap Growth and High Yield
Can any of the company-specific risk be diversified away by investing in both Midcap Growth and High Yield 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 High Yield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Midcap Growth Fund and High Yield Fund, you can compare the effects of market volatilities on Midcap Growth and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and High Yield.
Diversification Opportunities for Midcap Growth and High Yield
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Midcap and High is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and High Yield Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield 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 Midcap Growth Fund are associated (or correlated) with High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Midcap Growth i.e., Midcap Growth and High Yield go up and down completely randomly.
Pair Corralation between Midcap Growth and High Yield
Assuming the 90 days horizon Midcap Growth Fund is expected to generate 3.95 times more return on investment than High Yield. However, Midcap Growth is 3.95 times more volatile than High Yield Fund. It trades about 0.06 of its potential returns per unit of risk. High Yield Fund is currently generating about 0.12 per unit of risk. If you would invest 783.00 in Midcap Growth Fund on September 3, 2024 and sell it today you would earn a total of 306.00 from holding Midcap Growth Fund or generate 39.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Midcap Growth Fund vs. High Yield Fund
Performance |
| Timeline |
| Midcap Growth |
| High Yield Fund |
Midcap Growth and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Midcap Growth and High Yield
The main advantage of trading using opposite Midcap Growth and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Midcap Growth position performs unexpectedly, High Yield 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 Yield will offset losses from the drop in High Yield's long position.| Midcap Growth vs. Global Gold Fund | Midcap Growth vs. Franklin Gold Precious | Midcap Growth vs. First Eagle Gold | Midcap Growth vs. Gamco Global Gold |
| High Yield vs. Blackrock Health Sciences | High Yield vs. Highland Longshort Healthcare | High Yield vs. Tekla Healthcare Opportunities | High Yield vs. Eventide Healthcare Life |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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