Correlation Between Midcap Growth and Equity Income
Can any of the company-specific risk be diversified away by investing in both Midcap Growth and Equity Income 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 Equity Income 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 Equity Income Fund, you can compare the effects of market volatilities on Midcap Growth and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Growth and Equity Income.
Diversification Opportunities for Midcap Growth and Equity Income
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Midcap and Equity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Growth Fund and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Midcap Growth i.e., Midcap Growth and Equity Income go up and down completely randomly.
Pair Corralation between Midcap Growth and Equity Income
Assuming the 90 days horizon Midcap Growth is expected to generate 1.06 times less return on investment than Equity Income. In addition to that, Midcap Growth is 1.5 times more volatile than Equity Income Fund. It trades about 0.1 of its total potential returns per unit of risk. Equity Income Fund is currently generating about 0.16 per unit of volatility. If you would invest 3,976 in Equity Income Fund on September 3, 2024 and sell it today you would earn a total of 589.00 from holding Equity Income Fund or generate 14.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 97.6% |
| Values | Daily Returns |
Midcap Growth Fund vs. Equity Income Fund
Performance |
| Timeline |
| Midcap Growth |
| Equity Income |
Midcap Growth and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Midcap Growth and Equity Income
The main advantage of trading using opposite Midcap Growth and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Midcap Growth position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.| Midcap Growth vs. Dodge Cox Emerging | Midcap Growth vs. Ep Emerging Markets | Midcap Growth vs. Angel Oak Multi Strategy | Midcap Growth vs. T Rowe Price |
| Equity Income vs. Champlain Mid Cap | Equity Income vs. Franklin Growth Opportunities | Equity Income vs. Pace Smallmedium Growth | Equity Income vs. T Rowe Price |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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