Correlation Between Mid Cap and Small Company

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

Diversification Opportunities for Mid Cap and Small Company

0.98

Correlation Coefficient

Mid Cap  Small Company

Almost no diversification

The 3 months correlation between Mid and Small is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund 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 Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of Mid Cap i.e., Mid Cap and Small Company go up and down completely randomly.

Pair Corralation between Mid Cap and Small Company

Assuming the 90 days horizon Mid Cap is expected to generate 1.97 times less return on investment than Small Company. But when comparing it to its historical volatility, Mid Cap Value is 1.26 times less risky than Small Company. It trades about 0.15 of its potential returns per unit of risk. Small Pany Fund is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,401  in Small Pany Fund on April 22, 2025 and sell it today you would earn a total of  233.00  from holding Small Pany Fund or generate 16.63% return on investment over 90 days.

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

Mid Cap Value  vs.  Small Pany Fund

Mid Cap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Small Pany Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Pany Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Company showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mid Cap and Small Company

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

The idea behind Mid Cap Value and Small Pany 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.