Correlation Between Aam Select and Large Capitalization

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

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

Diversification Opportunities for Aam Select and Large Capitalization

0.54

Correlation Coefficient

Aam Select  Large Capitalization

Very weak diversification

The 3 months correlation between Aam and Large is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Aam Select Income and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Aam Select 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 Aam Select Income are associated (or correlated) with Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Aam Select i.e., Aam Select and Large Capitalization go up and down completely randomly.

Pair Corralation between Aam Select and Large Capitalization

Assuming the 90 days horizon Aam Select is expected to generate 18.62 times less return on investment than Large Capitalization. But when comparing it to its historical volatility, Aam Select Income is 3.85 times less risky than Large Capitalization. It trades about 0.02 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  519.00  in Large Capitalization Growth on October 20, 2024 and sell it today you would earn a total of  11.00  from holding Large Capitalization Growth or generate 2.12% return on investment over 90 days.

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

Aam Select Income  vs.  Large Capitalization Growth

Aam Select Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Large Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Capitalization Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Aam Select and Large Capitalization

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

The idea behind Aam Select Income and Large Capitalization Growth 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.