Correlation Between Mid Capitalization and Financial Services

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

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

Diversification Opportunities for Mid Capitalization and Financial Services

0.98

Correlation Coefficient

Mid Capitalization  Financial Services

Almost no diversification

The 3 months correlation between Mid and Financial is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Mid Capitalization Portfolio and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Mid Capitalization 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 Capitalization Portfolio are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Mid Capitalization i.e., Mid Capitalization and Financial Services go up and down completely randomly.

Pair Corralation between Mid Capitalization and Financial Services

Assuming the 90 days horizon Mid Capitalization Portfolio is expected to generate 1.07 times more return on investment than Financial Services. However, Mid Capitalization is 1.07 times more volatile than Financial Services Portfolio. It trades about 0.18 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.1 per unit of risk. If you would invest  1,288  in Mid Capitalization Portfolio on May 5, 2025 and sell it today you would earn a total of  142.00  from holding Mid Capitalization Portfolio or generate 11.02% return on investment over 90 days.

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

Mid Capitalization Portfolio  vs.  Financial Services Portfolio

Mid Capitalization

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Capitalization Portfolio are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Capitalization may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Financial Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Capitalization and Financial Services

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

The idea behind Mid Capitalization Portfolio and Financial Services Portfolio 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..