Correlation Between Wilshire Large and Large Company

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

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

Diversification Opportunities for Wilshire Large and Large Company

1.0

Correlation Coefficient

Wilshire Large  Large Company

No risk reduction

The 3 months correlation between Wilshire and Large is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Wilshire Large and Large Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany Growth and Wilshire Large 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 Wilshire Large are associated (or correlated) with Large Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Pany Growth has no effect on the direction of Wilshire Large i.e., Wilshire Large and Large Company go up and down completely randomly.

Pair Corralation between Wilshire Large and Large Company

Assuming the 90 days horizon Wilshire Large is expected to under-perform the Large Company. In addition to that, Wilshire Large is 1.01 times more volatile than Large Pany Growth. It trades about -0.11 of its total potential returns per unit of risk. Large Pany Growth is currently generating about -0.11 per unit of volatility. If you would invest  5,298  in Large Pany Growth on December 29, 2024 and sell it today you would lose (575.00) from holding Large Pany Growth or give up 10.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Wilshire Large  vs.  Large Pany Growth

Wilshire Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wilshire Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Large Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Wilshire Large and Large Company

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

The idea behind Wilshire Large and Large Pany 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.