Correlation Between Mid Capitalization and Large Cap
Can any of the company-specific risk be diversified away by investing in both Mid Capitalization and Large 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 Mid Capitalization and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Capitalization Portfolio and Large Cap Value, you can compare the effects of market volatilities on Mid Capitalization and Large 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 Mid Capitalization with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Capitalization and Large Cap.
Diversification Opportunities for Mid Capitalization and Large Cap
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Mid and Large is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Mid Capitalization Portfolio and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value and Mid Capitalization 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 Mid Capitalization Portfolio are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Value has no effect on the direction of Mid Capitalization i.e., Mid Capitalization and Large Cap go up and down completely randomly.
Pair Corralation between Mid Capitalization and Large Cap
Assuming the 90 days horizon Mid Capitalization Portfolio is expected to generate 1.42 times more return on investment than Large Cap. However, Mid Capitalization is 1.42 times more volatile than Large Cap Value. It trades about 0.12 of its potential returns per unit of risk. Large Cap Value is currently generating about 0.13 per unit of risk. If you would invest 1,147 in Mid Capitalization Portfolio on November 7, 2024 and sell it today you would earn a total of 31.00 from holding Mid Capitalization Portfolio or generate 2.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Capitalization Portfolio vs. Large Cap Value
Performance |
| Timeline |
| Mid Capitalization |
| Large Cap Value |
Mid Capitalization and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Capitalization and Large Cap
The main advantage of trading using opposite Mid Capitalization and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Capitalization position performs unexpectedly, Large 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 Large Cap will offset losses from the drop in Large Cap's long position.| Mid Capitalization vs. Transamerica Emerging Markets | Mid Capitalization vs. Federated Emerging Market | Mid Capitalization vs. Growth Strategy Fund | Mid Capitalization vs. Doubleline Emerging Markets |
| Large Cap vs. Gmo Quality Fund | Large Cap vs. Federated Emerging Market | Large Cap vs. T Rowe Price | Large Cap vs. Cardinal Small Cap |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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