Correlation Between Mid-cap Growth and Small Cap

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

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

Diversification Opportunities for Mid-cap Growth and Small Cap

0.95

Correlation Coefficient

Mid-cap Growth  Small Cap

Almost no diversification

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

Pair Corralation between Mid-cap Growth and Small Cap

Assuming the 90 days horizon Mid-cap Growth is expected to generate 1.06 times less return on investment than Small Cap. But when comparing it to its historical volatility, Mid Cap Growth Profund is 1.13 times less risky than Small Cap. It trades about 0.29 of its potential returns per unit of risk. Small Cap Profund Small Cap is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  9,283  in Small Cap Profund Small Cap on April 20, 2025 and sell it today you would earn a total of  1,986  from holding Small Cap Profund Small Cap or generate 21.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Mid Cap Growth Profund  vs.  Small Cap Profund Small Cap

Mid Cap Growth

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth Profund are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Mid-cap Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Profund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Profund Small Cap are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mid-cap Growth and Small Cap

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

The idea behind Mid Cap Growth Profund and Small Cap Profund Small Cap 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.