Correlation Between Basic Materials and Sp Midcap
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Sp Midcap 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 Basic Materials and Sp Midcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials Fund and Sp Midcap 400, you can compare the effects of market volatilities on Basic Materials and Sp Midcap 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 Basic Materials with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Sp Midcap.
Diversification Opportunities for Basic Materials and Sp Midcap
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Basic and RYBHX is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Sp Midcap 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap 400 and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap 400 has no effect on the direction of Basic Materials i.e., Basic Materials and Sp Midcap go up and down completely randomly.
Pair Corralation between Basic Materials and Sp Midcap
Assuming the 90 days horizon Basic Materials is expected to generate 1.92 times less return on investment than Sp Midcap. But when comparing it to its historical volatility, Basic Materials Fund is 1.14 times less risky than Sp Midcap. It trades about 0.06 of its potential returns per unit of risk. Sp Midcap 400 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,616 in Sp Midcap 400 on August 26, 2024 and sell it today you would earn a total of 1,513 from holding Sp Midcap 400 or generate 32.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Sp Midcap 400
Performance |
| Timeline |
| Basic Materials |
| Sp Midcap 400 |
Basic Materials and Sp Midcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Sp Midcap
The main advantage of trading using opposite Basic Materials and Sp Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Sp Midcap 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 Sp Midcap will offset losses from the drop in Sp Midcap's long position.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Basic Materials Fund |
| Sp Midcap vs. Basic Materials Fund | Sp Midcap vs. Basic Materials Fund | Sp Midcap vs. Banking Fund Class | Sp Midcap vs. Basic Materials Fund |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world |