Correlation Between Sp Midcap and Large Cap

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

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

Diversification Opportunities for Sp Midcap and Large Cap

0.52

Correlation Coefficient

Sp Midcap  Large Cap

Very weak diversification

The 3 months correlation between SPMIX and Large is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sp Midcap Index and Large Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Core and Sp Midcap 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 Sp Midcap Index are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Core has no effect on the direction of Sp Midcap i.e., Sp Midcap and Large Cap go up and down completely randomly.

Pair Corralation between Sp Midcap and Large Cap

Assuming the 90 days horizon Sp Midcap is expected to generate 1.15 times less return on investment than Large Cap. In addition to that, Sp Midcap is 1.15 times more volatile than Large Cap Core. It trades about 0.06 of its total potential returns per unit of risk. Large Cap Core is currently generating about 0.08 per unit of volatility. If you would invest  2,032  in Large Cap Core on May 16, 2025 and sell it today you would earn a total of  80.00  from holding Large Cap Core or generate 3.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Sp Midcap Index  vs.  Large Cap Core

Sp Midcap Index

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Midcap Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Sp Midcap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Cap Core

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Core are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sp Midcap and Large Cap

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

The idea behind Sp Midcap Index and Large Cap Core 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 CEOs Directory module to screen CEOs from public companies around the world.