Correlation Between Small-cap Growth and Mid Cap

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

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

Diversification Opportunities for Small-cap Growth and Mid Cap

0.72

Correlation Coefficient

Small-cap Growth  Mid Cap

Poor diversification

The 3 months correlation between Small-cap and Mid is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Growth Profund and Mid Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap Growth and Small-cap Growth 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 Small Cap Growth Profund 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 Growth has no effect on the direction of Small-cap Growth i.e., Small-cap Growth and Mid Cap go up and down completely randomly.

Pair Corralation between Small-cap Growth and Mid Cap

Assuming the 90 days horizon Small Cap Growth Profund is expected to generate 1.03 times more return on investment than Mid Cap. However, Small-cap Growth is 1.03 times more volatile than Mid Cap Growth Profund. It trades about 0.26 of its potential returns per unit of risk. Mid Cap Growth Profund is currently generating about 0.2 per unit of risk. If you would invest  10,229  in Small Cap Growth Profund on February 13, 2024 and sell it today you would earn a total of  497.00  from holding Small Cap Growth Profund or generate 4.86% return on investment over 90 days.

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

Small Cap Growth Profund  vs.  Mid Cap Growth Profund

Small Cap Growth

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth Profund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Small-cap Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mid Cap Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Growth Profund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Mid Cap may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Small-cap Growth and Mid Cap

The main advantage of trading using opposite Small-cap Growth and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small-cap Growth 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 Small Cap Growth Profund and Mid Cap Growth Profund 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.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.