Correlation Between Defensive Market and Small-midcap Dividend

Can any of the company-specific risk be diversified away by investing in both Defensive Market and Small-midcap Dividend 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 Defensive Market and Small-midcap Dividend into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Defensive Market Strategies and Small Midcap Dividend Income, you can compare the effects of market volatilities on Defensive Market and Small-midcap Dividend 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 Defensive Market with a short position of Small-midcap Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defensive Market and Small-midcap Dividend.

Diversification Opportunities for Defensive Market and Small-midcap Dividend

0.96

Correlation Coefficient

Defensive Market  Small-midcap Dividend

Almost no diversification

The 3 months correlation between Defensive and Small-midcap is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Defensive Market Strategies and Small Midcap Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Midcap Dividend and Defensive Market 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 Defensive Market Strategies are associated (or correlated) with Small-midcap Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Midcap Dividend has no effect on the direction of Defensive Market i.e., Defensive Market and Small-midcap Dividend go up and down completely randomly.

Pair Corralation between Defensive Market and Small-midcap Dividend

Assuming the 90 days horizon Defensive Market is expected to generate 1.85 times less return on investment than Small-midcap Dividend. But when comparing it to its historical volatility, Defensive Market Strategies is 2.61 times less risky than Small-midcap Dividend. It trades about 0.25 of its potential returns per unit of risk. Small Midcap Dividend Income is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,757  in Small Midcap Dividend Income on May 31, 2025 and sell it today you would earn a total of  178.00  from holding Small Midcap Dividend Income or generate 10.13% return on investment over 90 days.

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

Defensive Market Strategies  vs.  Small Midcap Dividend Income

Defensive Market Str

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Defensive Market Strategies are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Defensive Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Small Midcap Dividend

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Midcap Dividend Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small-midcap Dividend may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Defensive Market and Small-midcap Dividend

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

The idea behind Defensive Market Strategies and Small Midcap Dividend Income 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.