Correlation Between Large Company and Wilshire 5000

Can any of the company-specific risk be diversified away by investing in both Large Company and Wilshire 5000 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 Wilshire 5000 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 Wilshire 5000 Index, you can compare the effects of market volatilities on Large Company and Wilshire 5000 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 Wilshire 5000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Company and Wilshire 5000.

Diversification Opportunities for Large Company and Wilshire 5000

0.98

Correlation Coefficient

Large Company  Wilshire 5000

Almost no diversification

The 3 months correlation between Large and Wilshire is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value and Wilshire 5000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire 5000 Index 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 Wilshire 5000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire 5000 Index has no effect on the direction of Large Company i.e., Large Company and Wilshire 5000 go up and down completely randomly.

Pair Corralation between Large Company and Wilshire 5000

Assuming the 90 days horizon Large Company is expected to generate 1.38 times less return on investment than Wilshire 5000. But when comparing it to its historical volatility, Large Pany Value is 1.03 times less risky than Wilshire 5000. It trades about 0.08 of its potential returns per unit of risk. Wilshire 5000 Index is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,274  in Wilshire 5000 Index on September 5, 2024 and sell it today you would earn a total of  1,200  from holding Wilshire 5000 Index or generate 52.77% return on investment over 90 days.

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

Large Pany Value  vs.  Wilshire 5000 Index

Large Pany Value

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Pany Value are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Large Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wilshire 5000 Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wilshire 5000 Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wilshire 5000 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Large Company and Wilshire 5000

The main advantage of trading using opposite Large Company and Wilshire 5000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Company position performs unexpectedly, Wilshire 5000 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 Wilshire 5000 will offset losses from the drop in Wilshire 5000's long position.

The idea behind Large Pany Value and Wilshire 5000 Index 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 Global Correlations module to find global opportunities by holding instruments from different markets.