Correlation Between Fulcrum Diversified and Vanguard Large-cap

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

By analyzing existing cross correlation between Fulcrum Diversified Absolute and Vanguard Large Cap Index, you can compare the effects of market volatilities on Fulcrum Diversified and Vanguard Large-cap 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 Fulcrum Diversified with a short position of Vanguard Large-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fulcrum Diversified and Vanguard Large-cap.

Diversification Opportunities for Fulcrum Diversified and Vanguard Large-cap

0.82

Correlation Coefficient

Fulcrum Diversified  Vanguard Large-cap

Very poor diversification

The 3 months correlation between Fulcrum and Vanguard is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large Cap and Fulcrum Diversified 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 Fulcrum Diversified Absolute are associated (or correlated) with Vanguard Large-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of Fulcrum Diversified i.e., Fulcrum Diversified and Vanguard Large-cap go up and down completely randomly.

Pair Corralation between Fulcrum Diversified and Vanguard Large-cap

Assuming the 90 days horizon Fulcrum Diversified Absolute is expected to generate 0.35 times more return on investment than Vanguard Large-cap. However, Fulcrum Diversified Absolute is 2.83 times less risky than Vanguard Large-cap. It trades about 0.0 of its potential returns per unit of risk. Vanguard Large Cap Index is currently generating about -0.09 per unit of risk. If you would invest  929.00  in Fulcrum Diversified Absolute on December 29, 2024 and sell it today you would lose (1.00) from holding Fulcrum Diversified Absolute or give up 0.11% of portfolio value over 90 days.

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

Fulcrum Diversified Absolute  vs.  Vanguard Large Cap Index

Fulcrum Diversified

Risk-Adjusted Performance

Very Weak

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

Vanguard Large Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fulcrum Diversified and Vanguard Large-cap

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

The idea behind Fulcrum Diversified Absolute and Vanguard Large Cap 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.