Correlation Between Midcap Value and Equity Income
Can any of the company-specific risk be diversified away by investing in both Midcap Value 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 Value 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 Value Fund and Equity Income Fund, you can compare the effects of market volatilities on Midcap Value 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 Value with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Value and Equity Income.
Diversification Opportunities for Midcap Value and Equity Income
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Midcap and Equity is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Value 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 Value 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 Value 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 Value i.e., Midcap Value and Equity Income go up and down completely randomly.
Pair Corralation between Midcap Value and Equity Income
Assuming the 90 days horizon Midcap Value Fund is expected to under-perform the Equity Income. In addition to that, Midcap Value is 1.24 times more volatile than Equity Income Fund. It trades about -0.17 of its total potential returns per unit of risk. Equity Income Fund is currently generating about -0.05 per unit of volatility. If you would invest 4,095 in Equity Income Fund on November 28, 2024 and sell it today you would lose (25.00) from holding Equity Income Fund or give up 0.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Midcap Value Fund vs. Equity Income Fund
Performance |
| Timeline |
| Midcap Value |
| Equity Income |
Midcap Value and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Midcap Value and Equity Income
The main advantage of trading using opposite Midcap Value and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Midcap Value 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 Value vs. Voya Real Estate | Midcap Value vs. Neuberger Berman Real | Midcap Value vs. Real Estate Securities | Midcap Value vs. Nexpoint Real Estate |
| Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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