Correlation Between Mid Cap and Broad Cap
Can any of the company-specific risk be diversified away by investing in both Mid Cap and Broad 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 Mid Cap and Broad Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Index and Broad Cap Value, you can compare the effects of market volatilities on Mid Cap and Broad 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 Mid Cap with a short position of Broad Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Broad Cap.
Diversification Opportunities for Mid Cap and Broad Cap
Almost no diversification
The 3 months correlation between Mid and Broad is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Index and Broad Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broad Cap Value and Mid 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 Mid Cap Index are associated (or correlated) with Broad Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broad Cap Value has no effect on the direction of Mid Cap i.e., Mid Cap and Broad Cap go up and down completely randomly.
Pair Corralation between Mid Cap and Broad Cap
Assuming the 90 days horizon Mid Cap Index is expected to generate 1.35 times more return on investment than Broad Cap. However, Mid Cap is 1.35 times more volatile than Broad Cap Value. It trades about 0.19 of its potential returns per unit of risk. Broad Cap Value is currently generating about 0.2 per unit of risk. If you would invest 2,751 in Mid Cap Index on August 26, 2024 and sell it today you would earn a total of 230.00 from holding Mid Cap Index or generate 8.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Index vs. Broad Cap Value
Performance |
| Timeline |
| Mid Cap Index |
| Broad Cap Value |
Mid Cap and Broad Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and Broad Cap
The main advantage of trading using opposite Mid Cap and Broad Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, Broad 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 Broad Cap will offset losses from the drop in Broad Cap's long position.| Mid Cap vs. Mid Cap Strategic | Mid Cap vs. Valic Company I | Mid Cap vs. Valic Company I | Mid Cap vs. Stock Index Fund |
| Broad Cap vs. Mid Cap Index | Broad Cap vs. Mid Cap Strategic | Broad Cap vs. Valic Company I | Broad Cap vs. Valic Company I |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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