Correlation Between Mid Cap and Small Capitalization
Can any of the company-specific risk be diversified away by investing in both Mid Cap and Small 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 Mid Cap and Small Capitalization 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 Small Capitalization Portfolio, you can compare the effects of market volatilities on Mid Cap and Small 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 Mid Cap with a short position of Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Small Capitalization.
Diversification Opportunities for Mid Cap and Small Capitalization
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Mid and Small is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization 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 Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Mid Cap i.e., Mid Cap and Small Capitalization go up and down completely randomly.
Pair Corralation between Mid Cap and Small Capitalization
Assuming the 90 days horizon Mid Cap Growth is expected to generate 0.73 times more return on investment than Small Capitalization. However, Mid Cap Growth is 1.38 times less risky than Small Capitalization. It trades about 0.48 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about 0.25 per unit of risk. If you would invest 3,654 in Mid Cap Growth on September 1, 2024 and sell it today you would earn a total of 471.00 from holding Mid Cap Growth or generate 12.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Growth vs. Small Capitalization Portfolio
Performance |
| Timeline |
| Mid Cap Growth |
| Small Capitalization |
Mid Cap and Small Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and Small Capitalization
The main advantage of trading using opposite Mid Cap and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, Small 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 Small Capitalization will offset losses from the drop in Small Capitalization'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 |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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