Correlation Between Mid Cap and Limited Duration
Can any of the company-specific risk be diversified away by investing in both Mid Cap and Limited Duration 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 Cap and Limited Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Growth and Limited Duration Fund, you can compare the effects of market volatilities on Mid Cap and Limited Duration 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 Cap with a short position of Limited Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Limited Duration.
Diversification Opportunities for Mid Cap and Limited Duration
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Mid and Limited is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Limited Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Limited Duration and Mid Cap 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 Cap Growth are associated (or correlated) with Limited Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Limited Duration has no effect on the direction of Mid Cap i.e., Mid Cap and Limited Duration go up and down completely randomly.
Pair Corralation between Mid Cap and Limited Duration
Assuming the 90 days horizon Mid Cap Growth is expected to generate 7.5 times more return on investment than Limited Duration. However, Mid Cap is 7.5 times more volatile than Limited Duration Fund. It trades about 0.11 of its potential returns per unit of risk. Limited Duration Fund is currently generating about 0.18 per unit of risk. If you would invest 3,543 in Mid Cap Growth on September 3, 2024 and sell it today you would earn a total of 590.00 from holding Mid Cap Growth or generate 16.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Growth vs. Limited Duration Fund
Performance |
| Timeline |
| Mid Cap Growth |
| Limited Duration |
Mid Cap and Limited Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and Limited Duration
The main advantage of trading using opposite Mid Cap and Limited Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, Limited Duration 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 Limited Duration will offset losses from the drop in Limited Duration's long position.The idea behind Mid Cap Growth and Limited Duration Fund 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.| Limited Duration vs. Smallcap Growth Fund | Limited Duration vs. Mid Cap Growth | Limited Duration vs. Goldman Sachs Growth | Limited Duration vs. Chase Growth 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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