Correlation Between Mid Cap and American Funds
Can any of the company-specific risk be diversified away by investing in both Mid Cap and American Funds 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 Mid Cap and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap 15x Strategy and American Funds Amcap, you can compare the effects of market volatilities on Mid Cap and American Funds 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 Mid Cap with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and American Funds.
Diversification Opportunities for Mid Cap and American Funds
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Mid and American is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and American Funds Amcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Amcap and Mid Cap 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 Mid Cap 15x Strategy are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Amcap has no effect on the direction of Mid Cap i.e., Mid Cap and American Funds go up and down completely randomly.
Pair Corralation between Mid Cap and American Funds
Assuming the 90 days horizon Mid Cap 15x Strategy is expected to under-perform the American Funds. In addition to that, Mid Cap is 1.57 times more volatile than American Funds Amcap. It trades about -0.02 of its total potential returns per unit of risk. American Funds Amcap is currently generating about 0.07 per unit of volatility. If you would invest 4,632 in American Funds Amcap on September 13, 2024 and sell it today you would earn a total of 56.00 from holding American Funds Amcap or generate 1.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap 15x Strategy vs. American Funds Amcap
Performance |
| Timeline |
| Mid Cap 15x |
| American Funds Amcap |
Mid Cap and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and American Funds
The main advantage of trading using opposite Mid Cap and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Mid Cap vs. Baillie Gifford Health | Mid Cap vs. Lord Abbett Health | Mid Cap vs. Allianzgi Health Sciences | Mid Cap vs. Vanguard Health Care |
| American Funds vs. Sentinel Small Pany | American Funds vs. Wasatch Small Cap | American Funds vs. Massmutual Premier Diversified | American Funds vs. Blackrock Sm 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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