Correlation Between Asset Allocation and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Asset Allocation 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 Asset Allocation and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Asset Allocation Fund and Mid Cap Index, you can compare the effects of market volatilities on Asset Allocation 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 Asset Allocation with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Asset Allocation and Mid Cap.
Diversification Opportunities for Asset Allocation and Mid Cap
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Asset and Mid is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Asset Allocation Fund and Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Index and Asset Allocation 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 Asset Allocation 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 Index has no effect on the direction of Asset Allocation i.e., Asset Allocation and Mid Cap go up and down completely randomly.
Pair Corralation between Asset Allocation and Mid Cap
Assuming the 90 days horizon Asset Allocation is expected to generate 4.09 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Asset Allocation Fund is 2.1 times less risky than Mid Cap. It trades about 0.14 of its potential returns per unit of risk. Mid Cap Index is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 2,800 in Mid Cap Index on August 30, 2024 and sell it today you would earn a total of 201.00 from holding Mid Cap Index or generate 7.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Asset Allocation Fund vs. Mid Cap Index
Performance |
| Timeline |
| Asset Allocation |
| Mid Cap Index |
Asset Allocation and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Asset Allocation and Mid Cap
The main advantage of trading using opposite Asset Allocation and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asset Allocation 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.| Asset Allocation vs. T Rowe Price | Asset Allocation vs. Barings Emerging Markets | Asset Allocation vs. Commodities Strategy Fund | Asset Allocation vs. Dodge Cox Emerging |
| Mid Cap vs. Versatile Bond Portfolio | Mid Cap vs. Small Cap Stock | Mid Cap vs. Omni Small Cap Value | Mid Cap vs. T Rowe Price |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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