Correlation Between Large Company and Global Small

Can any of the company-specific risk be diversified away by investing in both Large Company and Global Small 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 Global Small 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 Global Small Cap, you can compare the effects of market volatilities on Large Company and Global Small 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 Global Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and Global Small.

Diversification Opportunities for Large Company and Global Small

-0.23

Correlation Coefficient

Large Company  Global Small

Very good diversification

The 3 months correlation between Large and Global is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value and Global Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Small Cap 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 Global Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Small Cap has no effect on the direction of Large Company i.e., Large Company and Global Small go up and down completely randomly.

Pair Corralation between Large Company and Global Small

Assuming the 90 days horizon Large Pany Value is expected to generate 0.57 times more return on investment than Global Small. However, Large Pany Value is 1.75 times less risky than Global Small. It trades about 0.13 of its potential returns per unit of risk. Global Small Cap is currently generating about -0.06 per unit of risk. If you would invest  1,002  in Large Pany Value on December 29, 2024 and sell it today you would earn a total of  55.00  from holding Large Pany Value or generate 5.49% return on investment over 90 days.

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

Large Pany Value  vs.  Global Small Cap

Large Pany Value

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Pany Value are ranked lower than 10 (%) 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.

Global Small Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Large Company and Global Small

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

The idea behind Large Pany Value and Global Small Cap 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.