Correlation Between Mid Cap and Power Momentum
Can any of the company-specific risk be diversified away by investing in both Mid Cap and Power Momentum 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 Power Momentum 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 Power Momentum Index, you can compare the effects of market volatilities on Mid Cap and Power Momentum 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 Power Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Power Momentum.
Diversification Opportunities for Mid Cap and Power Momentum
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Mid and Power is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Power Momentum Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Momentum Index 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 Power Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Momentum Index has no effect on the direction of Mid Cap i.e., Mid Cap and Power Momentum go up and down completely randomly.
Pair Corralation between Mid Cap and Power Momentum
Assuming the 90 days horizon Mid Cap Growth is expected to generate 1.42 times more return on investment than Power Momentum. However, Mid Cap is 1.42 times more volatile than Power Momentum Index. It trades about 0.05 of its potential returns per unit of risk. Power Momentum Index is currently generating about 0.02 per unit of risk. If you would invest 4,029 in Mid Cap Growth on September 13, 2024 and sell it today you would earn a total of 40.00 from holding Mid Cap Growth or generate 0.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Mid Cap Growth vs. Power Momentum Index
Performance |
| Timeline |
| Mid Cap Growth |
| Power Momentum Index |
Mid Cap and Power Momentum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and Power Momentum
The main advantage of trading using opposite Mid Cap and Power Momentum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, Power Momentum 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 Power Momentum will offset losses from the drop in Power Momentum's long position.| Mid Cap vs. Touchstone Sustainability And | Mid Cap vs. Growth Opportunities Fund | Mid Cap vs. Total Return Fund | Mid Cap vs. William Blair International |
| Power Momentum vs. Power Income Fund | Power Momentum vs. Power Income Fund | Power Momentum vs. Power Income Fund | Power Momentum vs. Power Momentum Index |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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