Correlation Between Stock Index and Mid Cap
Can any of the company-specific risk be diversified away by investing in both Stock Index 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 Stock Index and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stock Index Fund and Mid Cap Index, you can compare the effects of market volatilities on Stock Index 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 Stock Index with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Index and Mid Cap.
Diversification Opportunities for Stock Index and Mid Cap
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Stock and Mid is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index 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 Stock Index 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 Stock Index 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 Stock Index i.e., Stock Index and Mid Cap go up and down completely randomly.
Pair Corralation between Stock Index and Mid Cap
Assuming the 90 days horizon Stock Index Fund is expected to generate 0.84 times more return on investment than Mid Cap. However, Stock Index Fund is 1.19 times less risky than Mid Cap. It trades about 0.12 of its potential returns per unit of risk. Mid Cap Index is currently generating about 0.09 per unit of risk. If you would invest 5,575 in Stock Index Fund on November 2, 2024 and sell it today you would earn a total of 570.00 from holding Stock Index Fund or generate 10.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stock Index Fund vs. Mid Cap Index
Performance |
| Timeline |
| Stock Index Fund |
| Mid Cap Index |
Stock Index and Mid Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stock Index and Mid Cap
The main advantage of trading using opposite Stock Index and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stock Index 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.| Stock Index vs. Mid Cap Index | Stock Index vs. Valic Company I | Stock Index vs. Mid Cap Strategic | Stock Index vs. Valic Company I |
| Mid Cap vs. Doubleline Total Return | Mid Cap vs. Ab Global Bond | Mid Cap vs. Gmo High Yield | Mid Cap vs. Ambrus Core Bond |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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