Correlation Between Equity Income and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Equity Income and Mid 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 Equity Income and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Income Fund and Mid Cap Value, you can compare the effects of market volatilities on Equity Income and Mid 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 Equity Income with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Mid Cap.
Diversification Opportunities for Equity Income and Mid Cap
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Equity and Mid is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Value and Equity Income 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 Equity Income Fund are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Value has no effect on the direction of Equity Income i.e., Equity Income and Mid Cap go up and down completely randomly.
Pair Corralation between Equity Income and Mid Cap
Assuming the 90 days horizon Equity Income is expected to generate 1.55 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Equity Income Fund is 1.25 times less risky than Mid Cap. It trades about 0.02 of its potential returns per unit of risk. Mid Cap Value is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,618 in Mid Cap Value on September 4, 2024 and sell it today you would earn a total of 157.00 from holding Mid Cap Value or generate 9.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Income Fund vs. Mid Cap Value
Performance |
| Timeline |
| Equity Income |
| Mid Cap Value |
Equity Income and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and Mid Cap
The main advantage of trading using opposite Equity Income and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income position performs unexpectedly, Mid 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 Mid Cap will offset losses from the drop in Mid Cap's long position.| Equity Income vs. Value Fund Investor | Equity Income vs. Heritage Fund Investor | Equity Income vs. Equity Growth Fund | Equity Income vs. Mid Cap Value |
| Mid Cap vs. Mid Cap Value | Mid Cap vs. Equity Growth Fund | Mid Cap vs. Income Growth Fund | Mid Cap vs. Diversified Bond 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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