Correlation Between Basic Materials and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and 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 Mid Cap 15x Strategy, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Mid Cap.
Diversification Opportunities for Basic Materials and Mid Cap
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and Mid is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Mid Cap 15x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap 15x 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 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 15x has no effect on the direction of Basic Materials i.e., Basic Materials and Mid Cap go up and down completely randomly.
Pair Corralation between Basic Materials and Mid Cap
Assuming the 90 days horizon Basic Materials Fund is expected to generate 0.56 times more return on investment than Mid Cap. However, Basic Materials Fund is 1.78 times less risky than Mid Cap. It trades about 0.02 of its potential returns per unit of risk. Mid Cap 15x Strategy is currently generating about 0.01 per unit of risk. If you would invest 8,016 in Basic Materials Fund on September 14, 2024 and sell it today you would earn a total of 16.00 from holding Basic Materials Fund or generate 0.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Mid Cap 15x Strategy
Performance |
| Timeline |
| Basic Materials |
| Mid Cap 15x |
Basic Materials and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Mid Cap
The main advantage of trading using opposite Basic Materials and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund |
| Mid Cap vs. Baillie Gifford Health | Mid Cap vs. Lord Abbett Health | Mid Cap vs. Allianzgi Health Sciences | Mid Cap vs. Vanguard Health Care |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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