Correlation Between Mid Cap and Disciplined Growth

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Disciplined 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 Disciplined Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mid Cap Value and Disciplined Growth Fund, you can compare the effects of market volatilities on Mid Cap and Disciplined 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 Disciplined Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Disciplined Growth.

Diversification Opportunities for Mid Cap and Disciplined Growth

0.61

Correlation Coefficient

Mid Cap  Disciplined Growth

Poor diversification

The 3 months correlation between Mid and Disciplined is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and Disciplined Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Disciplined 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 Value are associated (or correlated) with Disciplined Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Disciplined Growth has no effect on the direction of Mid Cap i.e., Mid Cap and Disciplined Growth go up and down completely randomly.

Pair Corralation between Mid Cap and Disciplined Growth

Assuming the 90 days horizon Mid Cap Value is expected to generate 0.6 times more return on investment than Disciplined Growth. However, Mid Cap Value is 1.67 times less risky than Disciplined Growth. It trades about -0.17 of its potential returns per unit of risk. Disciplined Growth Fund is currently generating about -0.13 per unit of risk. If you would invest  1,603  in Mid Cap Value on January 30, 2024 and sell it today you would lose (38.00) from holding Mid Cap Value or give up 2.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Mid Cap Value  vs.  Disciplined Growth Fund

Mid Cap Value

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Disciplined Growth

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Disciplined Growth Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Disciplined Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and Disciplined Growth

The main advantage of trading using opposite Mid Cap and Disciplined Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, Disciplined 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 Disciplined Growth will offset losses from the drop in Disciplined Growth's long position.

The idea behind Mid Cap Value and Disciplined Growth Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.