Correlation Between Cardinal Small and Ivy Large

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

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

Diversification Opportunities for Cardinal Small and Ivy Large

0.44

Correlation Coefficient

Cardinal Small  Ivy Large

Very weak diversification

The 3 months correlation between Cardinal and Ivy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Small Cap and Ivy Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Large Cap and Cardinal Small 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 Cardinal Small Cap are associated (or correlated) with Ivy Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Large Cap has no effect on the direction of Cardinal Small i.e., Cardinal Small and Ivy Large go up and down completely randomly.

Pair Corralation between Cardinal Small and Ivy Large

Assuming the 90 days horizon Cardinal Small is expected to generate 30.97 times less return on investment than Ivy Large. But when comparing it to its historical volatility, Cardinal Small Cap is 52.4 times less risky than Ivy Large. It trades about 0.22 of its potential returns per unit of risk. Ivy Large Cap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,552  in Ivy Large Cap on September 13, 2024 and sell it today you would earn a total of  229.00  from holding Ivy Large Cap or generate 6.45% return on investment over 90 days.

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

Cardinal Small Cap  vs.  Ivy Large Cap

Cardinal Small Cap

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Small Cap are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Cardinal Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ivy Large Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ivy Large Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ivy Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cardinal Small and Ivy Large

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

The idea behind Cardinal Small Cap and Ivy Large 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..