Correlation Between Sp 500 and Sp Midcap
Can any of the company-specific risk be diversified away by investing in both Sp 500 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 Sp 500 and Sp Midcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sp 500 Pure and Sp Midcap 400, you can compare the effects of market volatilities on Sp 500 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 Sp 500 with a short position of Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sp 500 and Sp Midcap.
Diversification Opportunities for Sp 500 and Sp Midcap
Very poor diversification
The 3 months correlation between RYZAX and RYBHX is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sp 500 Pure 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 Sp 500 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 Sp 500 Pure 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 Sp 500 i.e., Sp 500 and Sp Midcap go up and down completely randomly.
Pair Corralation between Sp 500 and Sp Midcap
Assuming the 90 days horizon Sp 500 is expected to generate 1.04 times less return on investment than Sp Midcap. But when comparing it to its historical volatility, Sp 500 Pure is 1.1 times less risky than Sp Midcap. It trades about 0.29 of its potential returns per unit of risk. Sp Midcap 400 is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 5,707 in Sp Midcap 400 on August 27, 2024 and sell it today you would earn a total of 422.00 from holding Sp Midcap 400 or generate 7.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sp 500 Pure vs. Sp Midcap 400
Performance |
| Timeline |
| Sp 500 Pure |
| Sp Midcap 400 |
Sp 500 and Sp Midcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sp 500 and Sp Midcap
The main advantage of trading using opposite Sp 500 and Sp Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sp 500 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.The idea behind Sp 500 Pure and Sp Midcap 400 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Sp Midcap vs. Sp Smallcap 600 | Sp Midcap vs. Sp 500 Pure | Sp Midcap vs. Sp Midcap 400 | Sp Midcap vs. Sp Smallcap 600 |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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