Correlation Between Madison Mid and Madison Core

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

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

Diversification Opportunities for Madison Mid and Madison Core

-0.42

Correlation Coefficient

Madison Mid  Madison Core

Very good diversification

The 3 months correlation between Madison and Madison is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Madison Mid Cap and Madison Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Core Bond and Madison Mid 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 Mid Cap are associated (or correlated) with Madison Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Core Bond has no effect on the direction of Madison Mid i.e., Madison Mid and Madison Core go up and down completely randomly.

Pair Corralation between Madison Mid and Madison Core

Assuming the 90 days horizon Madison Mid Cap is expected to under-perform the Madison Core. In addition to that, Madison Mid is 5.6 times more volatile than Madison Core Bond. It trades about -0.02 of its total potential returns per unit of risk. Madison Core Bond is currently generating about -0.06 per unit of volatility. If you would invest  894.00  in Madison Core Bond on January 24, 2025 and sell it today you would lose (6.00) from holding Madison Core Bond or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Madison Mid Cap  vs.  Madison Core Bond

Madison Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Madison Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Madison Core Bond

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Core Bond are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Madison Core 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 Mid and Madison Core

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

The idea behind Madison Mid Cap and Madison Core Bond 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.