Correlation Between Madison Small and Madison Aggressive

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

By analyzing existing cross correlation between Madison Small Cap and Madison Aggressive Allocation, you can compare the effects of market volatilities on Madison Small and Madison Aggressive 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 Madison Small with a short position of Madison Aggressive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Small and Madison Aggressive.

Diversification Opportunities for Madison Small and Madison Aggressive

0.95

Correlation Coefficient

Madison Small  Madison Aggressive

Almost no diversification

The 3 months correlation between Madison and Madison is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Madison Small Cap and Madison Aggressive Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Aggressive and Madison Small 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 Madison Small Cap are associated (or correlated) with Madison Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Aggressive has no effect on the direction of Madison Small i.e., Madison Small and Madison Aggressive go up and down completely randomly.

Pair Corralation between Madison Small and Madison Aggressive

Assuming the 90 days horizon Madison Small is expected to generate 3.72 times less return on investment than Madison Aggressive. In addition to that, Madison Small is 2.04 times more volatile than Madison Aggressive Allocation. It trades about 0.02 of its total potential returns per unit of risk. Madison Aggressive Allocation is currently generating about 0.12 per unit of volatility. If you would invest  1,134  in Madison Aggressive Allocation on May 5, 2025 and sell it today you would earn a total of  52.00  from holding Madison Aggressive Allocation or generate 4.59% return on investment over 90 days.

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

Madison Small Cap  vs.  Madison Aggressive Allocation

Madison Small Cap

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Madison Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Madison Aggressive

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Aggressive Allocation are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Madison Aggressive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Small and Madison Aggressive

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

The idea behind Madison Small Cap and Madison Aggressive Allocation 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.