Correlation Between Small Cap and Midcap Growth
Can any of the company-specific risk be diversified away by investing in both Small Cap and Midcap Growth 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 Small Cap and Midcap Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Cap Stock and Midcap Growth Fund, you can compare the effects of market volatilities on Small Cap and Midcap Growth 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 Small Cap with a short position of Midcap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Midcap Growth.
Diversification Opportunities for Small Cap and Midcap Growth
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Small and Midcap is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Midcap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Growth and Small 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 Small Cap Stock are associated (or correlated) with Midcap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Growth has no effect on the direction of Small Cap i.e., Small Cap and Midcap Growth go up and down completely randomly.
Pair Corralation between Small Cap and Midcap Growth
Assuming the 90 days horizon Small Cap is expected to generate 1.3 times less return on investment than Midcap Growth. In addition to that, Small Cap is 1.09 times more volatile than Midcap Growth Fund. It trades about 0.05 of its total potential returns per unit of risk. Midcap Growth Fund is currently generating about 0.08 per unit of volatility. If you would invest 744.00 in Midcap Growth Fund on August 31, 2024 and sell it today you would earn a total of 339.00 from holding Midcap Growth Fund or generate 45.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Small Cap Stock vs. Midcap Growth Fund
Performance |
| Timeline |
| Small Cap Stock |
| Midcap Growth |
Small Cap and Midcap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Small Cap and Midcap Growth
The main advantage of trading using opposite Small Cap and Midcap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap position performs unexpectedly, Midcap Growth 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 Midcap Growth will offset losses from the drop in Midcap Growth's long position.The idea behind Small Cap Stock and Midcap Growth 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.| Midcap Growth vs. Small Cap Stock | Midcap Growth vs. Growth Opportunities Fund | Midcap Growth vs. T Rowe Price | Midcap Growth vs. Ab Value 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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