Correlation Between Midcap Fund and Smallcap

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

By analyzing existing cross correlation between Midcap Fund Institutional and Smallcap Sp 600, you can compare the effects of market volatilities on Midcap Fund and Smallcap 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 Midcap Fund with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Midcap Fund and Smallcap.

Diversification Opportunities for Midcap Fund and Smallcap

0.87

Correlation Coefficient

Midcap Fund  Smallcap

Very poor diversification

The 3 months correlation between Midcap and Smallcap is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Institutional and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Midcap Fund 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 Midcap Fund Institutional are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Midcap Fund i.e., Midcap Fund and Smallcap go up and down completely randomly.

Pair Corralation between Midcap Fund and Smallcap

Assuming the 90 days horizon Midcap Fund is expected to generate 2.06 times less return on investment than Smallcap. But when comparing it to its historical volatility, Midcap Fund Institutional is 1.52 times less risky than Smallcap. It trades about 0.12 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,385  in Smallcap Sp 600 on May 26, 2025 and sell it today you would earn a total of  273.00  from holding Smallcap Sp 600 or generate 11.45% return on investment over 90 days.

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

Midcap Fund Institutional  vs.  Smallcap Sp 600

Midcap Fund Institutional

Risk-Adjusted Performance

Fair

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

Smallcap Sp 600

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly abnormal forward indicators, Smallcap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Midcap Fund and Smallcap

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

The idea behind Midcap Fund Institutional and Smallcap Sp 600 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.

Check out your portfolio center.

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.