Correlation Between Mid Cap and Emerging Markets

Can any of the company-specific risk be diversified away by investing in both Mid Cap and Emerging Markets 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 Emerging Markets 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 Emerging Markets Small, you can compare the effects of market volatilities on Mid Cap and Emerging Markets 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 Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Emerging Markets.

Diversification Opportunities for Mid Cap and Emerging Markets

0.0

Correlation Coefficient

Mid Cap  Emerging Markets

Pay attention - limited upside

The 3 months correlation between Mid and Emerging is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and Emerging Markets Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets Small 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 Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets Small has no effect on the direction of Mid Cap i.e., Mid Cap and Emerging Markets go up and down completely randomly.

Pair Corralation between Mid Cap and Emerging Markets

If you would invest  1,670  in Mid Cap Value on June 14, 2025 and sell it today you would earn a total of  14.00  from holding Mid Cap Value or generate 0.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Mid Cap Value  vs.  Emerging Markets Small

Mid Cap Value

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in October 2025.

Emerging Markets Small

Risk-Adjusted Performance

Weakest

Over the last 90 days Emerging Markets Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Emerging Markets 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 Emerging Markets

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

The idea behind Mid Cap Value and Emerging Markets Small 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .