Correlation Between Sentinel Small and Mid Cap

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

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

Diversification Opportunities for Sentinel Small and Mid Cap

0.86

Correlation Coefficient

Sentinel Small  Mid Cap

Very poor diversification

The 3 months correlation between Sentinel and Mid is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and Mid Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth and Sentinel 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 Sentinel Small Pany are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap Growth has no effect on the direction of Sentinel Small i.e., Sentinel Small and Mid Cap go up and down completely randomly.

Pair Corralation between Sentinel Small and Mid Cap

Assuming the 90 days horizon Sentinel Small is expected to generate 1.29 times less return on investment than Mid Cap. In addition to that, Sentinel Small is 1.0 times more volatile than Mid Cap Growth. It trades about 0.05 of its total potential returns per unit of risk. Mid Cap Growth is currently generating about 0.07 per unit of volatility. If you would invest  3,075  in Mid Cap Growth on August 14, 2024 and sell it today you would earn a total of  1,244  from holding Mid Cap Growth or generate 40.46% return on investment over 90 days.

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

Sentinel Small Pany  vs.  Mid Cap Growth

Sentinel Small Pany

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Small Pany are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sentinel Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Mid Cap Growth

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sentinel Small and Mid Cap

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

The idea behind Sentinel Small Pany and Mid Cap Growth 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.