Correlation Between Inverse Mid-cap and Telecommunications

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

By analyzing existing cross correlation between Inverse Mid Cap Strategy and Telecommunications Fund Class, you can compare the effects of market volatilities on Inverse Mid-cap and Telecommunications 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 Inverse Mid-cap with a short position of Telecommunications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Mid-cap and Telecommunications.

Diversification Opportunities for Inverse Mid-cap and Telecommunications

-0.91

Correlation Coefficient

Inverse Mid-cap  Telecommunications

Pay attention - limited upside

The 3 months correlation between Inverse and Telecommunications is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Mid Cap Strategy and Telecommunications Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecommunications and Inverse 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 Inverse Mid Cap Strategy are associated (or correlated) with Telecommunications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecommunications has no effect on the direction of Inverse Mid-cap i.e., Inverse Mid-cap and Telecommunications go up and down completely randomly.

Pair Corralation between Inverse Mid-cap and Telecommunications

Assuming the 90 days horizon Inverse Mid Cap Strategy is expected to under-perform the Telecommunications. In addition to that, Inverse Mid-cap is 1.22 times more volatile than Telecommunications Fund Class. It trades about -0.25 of its total potential returns per unit of risk. Telecommunications Fund Class is currently generating about 0.19 per unit of volatility. If you would invest  3,876  in Telecommunications Fund Class on August 31, 2024 and sell it today you would earn a total of  160.00  from holding Telecommunications Fund Class or generate 4.13% return on investment over 90 days.

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

Inverse Mid Cap Strategy  vs.  Telecommunications Fund Class

Inverse Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Mid Cap Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Telecommunications

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telecommunications Fund Class are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Telecommunications may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Inverse Mid-cap and Telecommunications

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

The idea behind Inverse Mid Cap Strategy and Telecommunications Fund Class 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.