Correlation Between Madison Investors and Madison Moderate

Can any of the company-specific risk be diversified away by investing in both Madison Investors and Madison Moderate 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 Madison Investors and Madison Moderate into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Madison Investors Fund and Madison Moderate Allocation, you can compare the effects of market volatilities on Madison Investors and Madison Moderate 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 Madison Investors with a short position of Madison Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Investors and Madison Moderate.

Diversification Opportunities for Madison Investors and Madison Moderate

0.96

Correlation Coefficient

Madison Investors  Madison Moderate

Almost no diversification

The 3 months correlation between MADISON and Madison is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Madison Investors Fund and Madison Moderate Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Moderate All and Madison Investors 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 Madison Investors Fund are associated (or correlated) with Madison Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Moderate All has no effect on the direction of Madison Investors i.e., Madison Investors and Madison Moderate go up and down completely randomly.

Pair Corralation between Madison Investors and Madison Moderate

Assuming the 90 days horizon Madison Investors Fund is expected to under-perform the Madison Moderate. In addition to that, Madison Investors is 1.76 times more volatile than Madison Moderate Allocation. It trades about -0.02 of its total potential returns per unit of risk. Madison Moderate Allocation is currently generating about -0.01 per unit of volatility. If you would invest  1,105  in Madison Moderate Allocation on February 14, 2025 and sell it today you would lose (11.00) from holding Madison Moderate Allocation or give up 1.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Madison Investors Fund  vs.  Madison Moderate Allocation

Madison Investors

Risk-Adjusted Performance

Very Weak

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

Madison Moderate All

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Madison Investors and Madison Moderate

The main advantage of trading using opposite Madison Investors and Madison Moderate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Investors position performs unexpectedly, Madison Moderate 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 Madison Moderate will offset losses from the drop in Madison Moderate's long position.

The idea behind Madison Investors Fund and Madison Moderate Allocation 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.