Correlation Between Large Company and Disciplined Growth

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

By analyzing existing cross correlation between Large Pany Value and Disciplined Growth Fund, you can compare the effects of market volatilities on Large Company and Disciplined Growth 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 Large Company with a short position of Disciplined Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and Disciplined Growth.

Diversification Opportunities for Large Company and Disciplined Growth

0.75

Correlation Coefficient

Large Company  Disciplined Growth

Poor diversification

The 3 months correlation between Large and Disciplined is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value and Disciplined Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Disciplined Growth and Large Company 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 Large Pany Value are associated (or correlated) with Disciplined Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Disciplined Growth has no effect on the direction of Large Company i.e., Large Company and Disciplined Growth go up and down completely randomly.

Pair Corralation between Large Company and Disciplined Growth

Assuming the 90 days horizon Large Company is expected to generate 3.3 times less return on investment than Disciplined Growth. But when comparing it to its historical volatility, Large Pany Value is 1.76 times less risky than Disciplined Growth. It trades about 0.1 of its potential returns per unit of risk. Disciplined Growth Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,817  in Disciplined Growth Fund on September 2, 2024 and sell it today you would earn a total of  338.00  from holding Disciplined Growth Fund or generate 12.0% return on investment over 90 days.

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

Large Pany Value  vs.  Disciplined Growth Fund

Large Pany Value

Risk-Adjusted Performance

7 of 100

OK

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

Disciplined Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Disciplined Growth Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Disciplined Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Large Company and Disciplined Growth

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

The idea behind Large Pany Value and Disciplined Growth Fund 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.