Correlation Between Mid Cap and International Growth
Can any of the company-specific risk be diversified away by investing in both Mid Cap and International 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 Mid Cap and International Growth 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 International Growth Fund, you can compare the effects of market volatilities on Mid Cap and International 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 Mid Cap with a short position of International Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and International Growth.
Diversification Opportunities for Mid Cap and International Growth
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Mid and International is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Index and International Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Growth 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 International Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Growth has no effect on the direction of Mid Cap i.e., Mid Cap and International Growth go up and down completely randomly.
Pair Corralation between Mid Cap and International Growth
Assuming the 90 days horizon Mid Cap is expected to generate 1.28 times less return on investment than International Growth. But when comparing it to its historical volatility, Mid Cap Index is 1.01 times less risky than International Growth. It trades about 0.11 of its potential returns per unit of risk. International Growth Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,078 in International Growth Fund on November 3, 2024 and sell it today you would earn a total of 193.00 from holding International Growth Fund or generate 17.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Index vs. International Growth Fund
Performance |
| Timeline |
| Mid Cap Index |
| International Growth |
Mid Cap and International Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and International Growth
The main advantage of trading using opposite Mid Cap and International Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, International 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 International Growth will offset losses from the drop in International Growth's long position.| Mid Cap vs. John Hancock Money | Mid Cap vs. Hewitt Money Market | Mid Cap vs. Franklin Government Money | Mid Cap vs. Chestnut Street Exchange |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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