Correlation Between Basic Materials and Inverse Mid-cap
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Inverse 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 Basic Materials and Inverse Mid-cap 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 Inverse Mid Cap Strategy, you can compare the effects of market volatilities on Basic Materials and Inverse 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 Basic Materials with a short position of Inverse Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Inverse Mid-cap.
Diversification Opportunities for Basic Materials and Inverse Mid-cap
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Basic and Inverse is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Inverse Mid Cap Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Mid Cap 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 Inverse 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 Inverse Mid Cap has no effect on the direction of Basic Materials i.e., Basic Materials and Inverse Mid-cap go up and down completely randomly.
Pair Corralation between Basic Materials and Inverse Mid-cap
Assuming the 90 days horizon Basic Materials Fund is expected to generate 0.75 times more return on investment than Inverse Mid-cap. However, Basic Materials Fund is 1.33 times less risky than Inverse Mid-cap. It trades about 0.02 of its potential returns per unit of risk. Inverse Mid Cap Strategy is currently generating about -0.24 per unit of risk. If you would invest 8,218 in Basic Materials Fund on August 26, 2024 and sell it today you would earn a total of 33.00 from holding Basic Materials Fund or generate 0.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Inverse Mid Cap Strategy
Performance |
| Timeline |
| Basic Materials |
| Inverse Mid Cap |
Basic Materials and Inverse Mid-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Inverse Mid-cap
The main advantage of trading using opposite Basic Materials and Inverse Mid-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Inverse 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 Inverse Mid-cap will offset losses from the drop in Inverse Mid-cap's long position.| Basic Materials vs. Energy Fund Investor | Basic Materials vs. Energy Services Fund | Basic Materials vs. Health Care Fund | Basic Materials vs. Banking Fund Investor |
| Inverse Mid-cap vs. Basic Materials Fund | Inverse Mid-cap vs. Basic Materials Fund | Inverse Mid-cap vs. Banking Fund Class | Inverse Mid-cap 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
Other Complementary Tools
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Global Correlations Find global opportunities by holding instruments from different markets | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Stocks Directory Find actively traded stocks across global markets |