Correlation Between Broad Cap and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Broad Cap 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 Broad Cap and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broad Cap Value and Mid Cap Strategic, you can compare the effects of market volatilities on Broad Cap 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 Broad Cap with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broad Cap and Mid Cap.
Diversification Opportunities for Broad Cap and Mid Cap
Almost no diversification
The 3 months correlation between Broad and Mid is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Broad Cap Value and Mid Cap Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Strategic and Broad 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 Broad Cap Value 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 Strategic has no effect on the direction of Broad Cap i.e., Broad Cap and Mid Cap go up and down completely randomly.
Pair Corralation between Broad Cap and Mid Cap
Assuming the 90 days horizon Broad Cap is expected to generate 1.6 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Broad Cap Value is 1.27 times less risky than Mid Cap. It trades about 0.2 of its potential returns per unit of risk. Mid Cap Strategic is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,978 in Mid Cap Strategic on August 26, 2024 and sell it today you would earn a total of 212.00 from holding Mid Cap Strategic or generate 10.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Broad Cap Value vs. Mid Cap Strategic
Performance |
| Timeline |
| Broad Cap Value |
| Mid Cap Strategic |
Broad Cap and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broad Cap and Mid Cap
The main advantage of trading using opposite Broad Cap and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broad Cap 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.| Broad Cap vs. Mid Cap Index | Broad Cap vs. Mid Cap Strategic | Broad Cap vs. Valic Company I | Broad Cap vs. Valic Company I |
| Mid Cap vs. Mid Cap Index | Mid Cap vs. Valic Company I | Mid Cap vs. Valic Company I | Mid Cap vs. Stock Index 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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