Correlation Between Science Technology and Madison Small
Can any of the company-specific risk be diversified away by investing in both Science Technology and Madison Small 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 Science Technology and Madison Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Science Technology Fund and Madison Small Cap, you can compare the effects of market volatilities on Science Technology and Madison Small 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 Science Technology with a short position of Madison Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Science Technology and Madison Small.
Diversification Opportunities for Science Technology and Madison Small
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Science and Madison is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Science Technology Fund and Madison Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Small Cap and Science Technology 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 Science Technology Fund are associated (or correlated) with Madison Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Small Cap has no effect on the direction of Science Technology i.e., Science Technology and Madison Small go up and down completely randomly.
Pair Corralation between Science Technology and Madison Small
Assuming the 90 days horizon Science Technology Fund is expected to generate 1.19 times more return on investment than Madison Small. However, Science Technology is 1.19 times more volatile than Madison Small Cap. It trades about 0.06 of its potential returns per unit of risk. Madison Small Cap is currently generating about 0.04 per unit of risk. If you would invest 1,783 in Science Technology Fund on December 12, 2024 and sell it today you would earn a total of 724.00 from holding Science Technology Fund or generate 40.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Science Technology Fund vs. Madison Small Cap
Performance |
| Timeline |
| Science Technology |
| Madison Small Cap |
Science Technology and Madison Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Science Technology and Madison Small
The main advantage of trading using opposite Science Technology and Madison Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Science Technology position performs unexpectedly, Madison Small 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 Madison Small will offset losses from the drop in Madison Small's long position.The idea behind Science Technology Fund and Madison Small Cap 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.
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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