Correlation Between Mid Cap and Sentinel Small

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

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

Diversification Opportunities for Mid Cap and Sentinel Small

0.98

Correlation Coefficient

Mid Cap  Sentinel Small

Almost no diversification

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

Pair Corralation between Mid Cap and Sentinel Small

Assuming the 90 days horizon Mid Cap Growth is expected to under-perform the Sentinel Small. In addition to that, Mid Cap is 1.39 times more volatile than Sentinel Small. It trades about -0.11 of its total potential returns per unit of risk. Sentinel Small is currently generating about -0.14 per unit of volatility. If you would invest  668.00  in Sentinel Small on January 23, 2025 and sell it today you would lose (110.00) from holding Sentinel Small or give up 16.47% of portfolio value over 90 days.

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

Mid Cap Growth  vs.  Sentinel Small

Mid Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Sentinel Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sentinel Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Mid Cap and Sentinel Small

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

The idea behind Mid Cap Growth and Sentinel Small 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.