Correlation Between Total Return and Mid Cap

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Can any of the company-specific risk be diversified away by investing in both Total Return and Mid Cap 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 Total Return and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Total Return Fund and Mid Cap Growth, you can compare the effects of market volatilities on Total Return and Mid Cap 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 Total Return with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Return and Mid Cap.

Diversification Opportunities for Total Return and Mid Cap

-0.72
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Total and Mid is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Fund and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth and Total Return 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 Total Return Fund are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Growth has no effect on the direction of Total Return i.e., Total Return and Mid Cap go up and down completely randomly.

Pair Corralation between Total Return and Mid Cap

Assuming the 90 days horizon Total Return is expected to generate 17.65 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Total Return Fund is 4.03 times less risky than Mid Cap. It trades about 0.09 of its potential returns per unit of risk. Mid Cap Growth is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  3,662  in Mid Cap Growth on August 28, 2024 and sell it today you would earn a total of  412.00  from holding Mid Cap Growth or generate 11.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Total Return Fund  vs.  Mid Cap Growth

 Performance 
       Timeline  
Total Return 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Total Return Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Total Return is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Mid Cap Growth 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Total Return and Mid Cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Total Return and Mid Cap

The main advantage of trading using opposite Total Return and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Return position performs unexpectedly, Mid Cap 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 Mid Cap will offset losses from the drop in Mid Cap's long position.
The idea behind Total Return Fund and Mid Cap Growth 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.
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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