Correlation Between Mid Cap and Small Company
Can any of the company-specific risk be diversified away by investing in both Mid Cap and Small Company 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 Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mid Cap Growth and Small Pany Growth, you can compare the effects of market volatilities on Mid Cap and Small Company 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 Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid Cap and Small Company.
Diversification Opportunities for Mid Cap and Small Company
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Mid and Small is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth 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 Growth are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Mid Cap i.e., Mid Cap and Small Company go up and down completely randomly.
Pair Corralation between Mid Cap and Small Company
Assuming the 90 days horizon Mid Cap Growth is expected to generate 0.94 times more return on investment than Small Company. However, Mid Cap Growth is 1.06 times less risky than Small Company. It trades about 0.06 of its potential returns per unit of risk. Small Pany Growth is currently generating about 0.03 per unit of risk. If you would invest 3,687 in Mid Cap Growth on March 25, 2025 and sell it today you would earn a total of 281.00 from holding Mid Cap Growth or generate 7.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mid Cap Growth vs. Small Pany Growth
Performance |
| Timeline |
| Mid Cap Growth |
| Small Pany Growth |
Mid Cap and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mid Cap and Small Company
The main advantage of trading using opposite Mid Cap and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid Cap position performs unexpectedly, Small Company 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 Small Company will offset losses from the drop in Small Company's long position.| Mid Cap vs. Touchstone Sustainability And | Mid Cap vs. Growth Opportunities Fund | Mid Cap vs. Total Return Fund | Mid Cap vs. William Blair International |
| Small Company vs. Mid Cap Growth | Small Company vs. Growth Portfolio Class | Small Company vs. Morgan Stanley Multi | Small Company vs. Emerging Markets Portfolio |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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