Correlation Between Mid Cap and Electronics Fund

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

By analyzing existing cross correlation between Mid Cap 15x Strategy and Electronics Fund Class, you can compare the effects of market volatilities on Mid Cap and Electronics Fund 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 Electronics Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Electronics Fund.

Diversification Opportunities for Mid Cap and Electronics Fund

0.89

Correlation Coefficient

Mid Cap  Electronics Fund

Very poor diversification

The 3 months correlation between Mid and Electronics is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap 15x Strategy and Electronics Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics Fund Class 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 15x Strategy are associated (or correlated) with Electronics Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Fund Class has no effect on the direction of Mid Cap i.e., Mid Cap and Electronics Fund go up and down completely randomly.

Pair Corralation between Mid Cap and Electronics Fund

Assuming the 90 days horizon Mid Cap is expected to generate 2.38 times less return on investment than Electronics Fund. But when comparing it to its historical volatility, Mid Cap 15x Strategy is 1.15 times less risky than Electronics Fund. It trades about 0.04 of its potential returns per unit of risk. Electronics Fund Class is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  19,804  in Electronics Fund Class on February 5, 2024 and sell it today you would earn a total of  11,478  from holding Electronics Fund Class or generate 57.96% return on investment over 90 days.

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

Mid Cap 15x Strategy  vs.  Electronics Fund Class

Mid Cap 15x

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Electronics Fund Class

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronics Fund Class are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Electronics Fund may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Mid Cap and Electronics Fund

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

The idea behind Mid Cap 15x Strategy and Electronics 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..