Correlation Between Mid Cap and International Business
Can any of the company-specific risk be diversified away by investing in both Mid Cap and International Business 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 International Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Value and International Business Machines, you can compare the effects of market volatilities on Mid Cap and International Business 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 International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and International Business.
Diversification Opportunities for Mid Cap and International Business
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Mid and International is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 Value are associated (or correlated) with International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Mid Cap i.e., Mid Cap and International Business go up and down completely randomly.
Pair Corralation between Mid Cap and International Business
Assuming the 90 days horizon Mid Cap is expected to generate 5.8 times less return on investment than International Business. But when comparing it to its historical volatility, Mid Cap Value is 1.3 times less risky than International Business. It trades about 0.01 of its potential returns per unit of risk. International Business Machines is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 12,508 in International Business Machines on January 24, 2024 and sell it today you would earn a total of 5,682 from holding International Business Machines or generate 45.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Value vs. International Business Machine
Performance |
| Timeline |
| Mid Cap Value |
| International Business |
Mid Cap and International Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and International Business
The main advantage of trading using opposite Mid Cap and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, International Business 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 International Business will offset losses from the drop in International Business' long position.| Mid Cap vs. Equity Growth Fund | Mid Cap vs. Income Growth Fund | Mid Cap vs. Diversified Bond Fund | Mid Cap vs. Emerging Markets Fund |
| International Business vs. FiscalNote Holdings | International Business vs. Innodata | International Business vs. Aurora Innovation | International Business vs. Conduent |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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