Correlation Between Blue Chip and Midcap Growth
Can any of the company-specific risk be diversified away by investing in both Blue Chip and Midcap Growth 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 Blue Chip and Midcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Fund and Midcap Growth Fund, you can compare the effects of market volatilities on Blue Chip and Midcap Growth 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 Blue Chip with a short position of Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Midcap Growth.
Diversification Opportunities for Blue Chip and Midcap Growth
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Blue and Midcap is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth and Blue Chip 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 Blue Chip Fund are associated (or correlated) with Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Blue Chip i.e., Blue Chip and Midcap Growth go up and down completely randomly.
Pair Corralation between Blue Chip and Midcap Growth
Assuming the 90 days horizon Blue Chip is expected to generate 1.15 times less return on investment than Midcap Growth. But when comparing it to its historical volatility, Blue Chip Fund is 1.3 times less risky than Midcap Growth. It trades about 0.13 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 903.00 in Midcap Growth Fund on September 4, 2024 and sell it today you would earn a total of 299.00 from holding Midcap Growth Fund or generate 33.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.38% |
| Values | Daily Returns |
Blue Chip Fund vs. Midcap Growth Fund
Performance |
| Timeline |
| Blue Chip Fund |
| Midcap Growth |
Blue Chip and Midcap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Midcap Growth
The main advantage of trading using opposite Blue Chip and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip position performs unexpectedly, Midcap Growth 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 Growth will offset losses from the drop in Midcap Growth's long position.| Blue Chip vs. T Rowe Price | Blue Chip vs. Franklin High Yield | Blue Chip vs. Lind Capital Partners | Blue Chip vs. Federated Pennsylvania Municipal |
| Midcap Growth vs. Delaware Limited Term Diversified | Midcap Growth vs. Wasatch Small Cap | Midcap Growth vs. Blackrock Sm Cap | Midcap Growth vs. Northern Small Cap |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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