Correlation Between Inflation Protection and Midcap Growth
Can any of the company-specific risk be diversified away by investing in both Inflation Protection 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 Inflation Protection and Midcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inflation Protection Fund and Midcap Growth Fund, you can compare the effects of market volatilities on Inflation Protection 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 Inflation Protection with a short position of Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation Protection and Midcap Growth.
Diversification Opportunities for Inflation Protection and Midcap Growth
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Inflation and Midcap is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protection 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 Inflation Protection 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 Inflation Protection 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 Inflation Protection i.e., Inflation Protection and Midcap Growth go up and down completely randomly.
Pair Corralation between Inflation Protection and Midcap Growth
Assuming the 90 days horizon Inflation Protection is expected to generate 13.27 times less return on investment than Midcap Growth. But when comparing it to its historical volatility, Inflation Protection Fund is 3.32 times less risky than Midcap Growth. It trades about 0.02 of its potential returns per unit of risk. Midcap Growth Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 962.00 in Midcap Growth Fund on August 31, 2024 and sell it today you would earn a total of 322.00 from holding Midcap Growth Fund or generate 33.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.46% |
| Values | Daily Returns |
Inflation Protection Fund vs. Midcap Growth Fund
Performance |
| Timeline |
| Inflation Protection |
| Midcap Growth |
Inflation Protection and Midcap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inflation Protection and Midcap Growth
The main advantage of trading using opposite Inflation Protection and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation Protection 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.The idea behind Inflation Protection Fund and Midcap Growth 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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