Correlation Between Moderately Aggressive and Mid Capitalization
Can any of the company-specific risk be diversified away by investing in both Moderately Aggressive and Mid Capitalization 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 Moderately Aggressive and Mid Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moderately Aggressive Balanced and Mid Capitalization Portfolio, you can compare the effects of market volatilities on Moderately Aggressive and Mid Capitalization 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 Moderately Aggressive with a short position of Mid Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Aggressive and Mid Capitalization.
Diversification Opportunities for Moderately Aggressive and Mid Capitalization
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Moderately and Mid is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Mid Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Capitalization and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Mid Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Capitalization has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Mid Capitalization go up and down completely randomly.
Pair Corralation between Moderately Aggressive and Mid Capitalization
Assuming the 90 days horizon Moderately Aggressive is expected to generate 2.51 times less return on investment than Mid Capitalization. But when comparing it to its historical volatility, Moderately Aggressive Balanced is 2.09 times less risky than Mid Capitalization. It trades about 0.23 of its potential returns per unit of risk. Mid Capitalization Portfolio is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 964.00 in Mid Capitalization Portfolio on August 29, 2024 and sell it today you would earn a total of 79.00 from holding Mid Capitalization Portfolio or generate 8.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Moderately Aggressive Balanced vs. Mid Capitalization Portfolio
Performance |
| Timeline |
| Moderately Aggressive |
| Mid Capitalization |
Moderately Aggressive and Mid Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moderately Aggressive and Mid Capitalization
The main advantage of trading using opposite Moderately Aggressive and Mid Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderately Aggressive position performs unexpectedly, Mid Capitalization 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 Capitalization will offset losses from the drop in Mid Capitalization's long position.| Moderately Aggressive vs. Goldman Sachs Financial | Moderately Aggressive vs. Mesirow Financial Small | Moderately Aggressive vs. Vanguard Financials Index | Moderately Aggressive vs. Gabelli Global Financial |
| Mid Capitalization vs. Europac Gold Fund | Mid Capitalization vs. The Gold Bullion | Mid Capitalization vs. Invesco Gold Special | Mid Capitalization vs. James Balanced Golden |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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