Correlation Between Inverse Mid-cap and Dow 2x

Can any of the company-specific risk be diversified away by investing in both Inverse Mid-cap and Dow 2x 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 Inverse Mid-cap and Dow 2x into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inverse Mid Cap Strategy and Dow 2x Strategy, you can compare the effects of market volatilities on Inverse Mid-cap and Dow 2x 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 Inverse Mid-cap with a short position of Dow 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Mid-cap and Dow 2x.

Diversification Opportunities for Inverse Mid-cap and Dow 2x

0.0

Correlation Coefficient

Inverse Mid-cap  Dow 2x

Pay attention - limited upside

The 3 months correlation between Inverse and Dow is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Mid Cap Strategy and Dow 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow 2x Strategy and Inverse 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 Inverse Mid Cap Strategy are associated (or correlated) with Dow 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow 2x Strategy has no effect on the direction of Inverse Mid-cap i.e., Inverse Mid-cap and Dow 2x go up and down completely randomly.

Pair Corralation between Inverse Mid-cap and Dow 2x

If you would invest (100.00) in Dow 2x Strategy on February 3, 2024 and sell it today you would earn a total of  100.00  from holding Dow 2x Strategy or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Inverse Mid Cap Strategy  vs.  Dow 2x Strategy

Inverse Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Mid Cap Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Inverse Mid-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dow 2x Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dow 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dow 2x is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Inverse Mid-cap and Dow 2x

The main advantage of trading using opposite Inverse Mid-cap and Dow 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Mid-cap position performs unexpectedly, Dow 2x 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 Dow 2x will offset losses from the drop in Dow 2x's long position.

The idea behind Inverse Mid Cap Strategy and Dow 2x Strategy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.