Correlation Between Midcap Fund and International Emerging

Can any of the company-specific risk be diversified away by investing in both Midcap Fund and International Emerging 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 Midcap Fund and International Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Midcap Fund Class and International Emerging Markets, you can compare the effects of market volatilities on Midcap Fund and International Emerging 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 Midcap Fund with a short position of International Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Fund and International Emerging.

Diversification Opportunities for Midcap Fund and International Emerging

0.88

Correlation Coefficient

Midcap Fund  International Emerging

Very poor diversification

The 24 months correlation between Midcap and International is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Class and International Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Emerging and Midcap Fund 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 Midcap Fund Class are associated (or correlated) with International Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Emerging has no effect on the direction of Midcap Fund i.e., Midcap Fund and International Emerging go up and down completely randomly.

Pair Corralation between Midcap Fund and International Emerging

Assuming the 90 days horizon Midcap Fund is expected to generate 1.06 times less return on investment than International Emerging. But when comparing it to its historical volatility, Midcap Fund Class is 1.07 times less risky than International Emerging. It trades about 0.34 of its potential returns per unit of risk. International Emerging Markets is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  2,494  in International Emerging Markets on February 16, 2024 and sell it today you would earn a total of  149.00  from holding International Emerging Markets or generate 5.97% return on investment over 90 days.

Time Period	24 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Midcap Fund Class  vs.  International Emerging Markets

Midcap Fund Class

Risk-Adjusted Performance

3 of 100

OK

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

International Emerging

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Emerging Markets are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, International Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Midcap Fund and International Emerging

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

The idea behind Midcap Fund Class and International Emerging Markets 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.