Correlation Between Strategic Equity and Large Cap

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

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

Diversification Opportunities for Strategic Equity and Large Cap

0.96

Correlation Coefficient

Strategic Equity  Large Cap

Almost no diversification

The 3 months correlation between Strategic and Large is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Equity Portfolio and Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Strategic Equity 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 Strategic Equity Portfolio are associated (or correlated) with 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 Large Cap Growth has no effect on the direction of Strategic Equity i.e., Strategic Equity and Large Cap go up and down completely randomly.

Pair Corralation between Strategic Equity and Large Cap

Assuming the 90 days horizon Strategic Equity Portfolio is expected to generate 0.66 times more return on investment than Large Cap. However, Strategic Equity Portfolio is 1.52 times less risky than Large Cap. It trades about -0.08 of its potential returns per unit of risk. Large Cap Growth is currently generating about -0.08 per unit of risk. If you would invest  2,730  in Strategic Equity Portfolio on December 30, 2024 and sell it today you would lose (126.00) from holding Strategic Equity Portfolio or give up 4.62% of portfolio value over 90 days.

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

Strategic Equity Portfolio  vs.  Large Cap Growth

Strategic Equity Por

Risk-Adjusted Performance

Very Weak

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

Large Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential 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 Strategic Equity and Large Cap

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

The idea behind Strategic Equity Portfolio and Large Cap 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.