Correlation Between Asset Allocation and Mid Cap

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

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

Diversification Opportunities for Asset Allocation and Mid Cap

0.97

Correlation Coefficient

Asset Allocation  Mid Cap

Almost no diversification

The 3 months correlation between Asset and Mid is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Asset Allocation Fund and Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Index and Asset Allocation 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 Asset Allocation Fund 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 Index has no effect on the direction of Asset Allocation i.e., Asset Allocation and Mid Cap go up and down completely randomly.

Pair Corralation between Asset Allocation and Mid Cap

Assuming the 90 days horizon Asset Allocation is expected to generate 1.11 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Asset Allocation Fund is 1.96 times less risky than Mid Cap. It trades about 0.27 of its potential returns per unit of risk. Mid Cap Index is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,280  in Mid Cap Index on May 2, 2025 and sell it today you would earn a total of  204.00  from holding Mid Cap Index or generate 8.95% return on investment over 90 days.

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

Asset Allocation Fund  vs.  Mid Cap Index

Asset Allocation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Asset Allocation Fund are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Asset Allocation may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Mid Cap Index

Risk-Adjusted Performance

Good

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

Pair Trading with Asset Allocation and Mid Cap

The main advantage of trading using opposite Asset Allocation and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asset Allocation 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 Asset Allocation Fund and Mid Cap Index 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.