Correlation Between Dynamic Allocation and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Dynamic 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 Dynamic 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 Dynamic Allocation Fund and Mid Cap Index, you can compare the effects of market volatilities on Dynamic 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 Dynamic Allocation with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dynamic Allocation and Mid Cap.

Diversification Opportunities for Dynamic Allocation and Mid Cap

0.94

Correlation Coefficient

Dynamic Allocation  Mid Cap

Almost no diversification

The 3 months correlation between Dynamic and Mid is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dynamic 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 Dynamic 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 Dynamic 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 Dynamic Allocation i.e., Dynamic Allocation and Mid Cap go up and down completely randomly.

Pair Corralation between Dynamic Allocation and Mid Cap

Assuming the 90 days horizon Dynamic Allocation is expected to generate 1.25 times less return on investment than Mid Cap. But when comparing it to its historical volatility, Dynamic Allocation Fund is 2.14 times less risky than Mid Cap. It trades about 0.23 of its potential returns per unit of risk. Mid Cap Index is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,366  in Mid Cap Index on May 27, 2025 and sell it today you would earn a total of  174.00  from holding Mid Cap Index or generate 7.35% return on investment over 90 days.

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

Dynamic Allocation Fund  vs.  Mid Cap Index

Dynamic Allocation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Allocation Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dynamic Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Index

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Index are ranked lower than 10 (%) 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 September 2025.

Pair Trading with Dynamic Allocation and Mid Cap

The main advantage of trading using opposite Dynamic Allocation and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dynamic 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 Dynamic 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.