Correlation Between Large Cap and Parnassus Mid

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

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

Diversification Opportunities for Large Cap and Parnassus Mid

0.93

Correlation Coefficient

Large Cap  Parnassus Mid

Almost no diversification

The 3 months correlation between Large and Parnassus is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap E and Parnassus Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parnassus Mid Cap and Large Cap 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 Cap E are associated (or correlated) with Parnassus Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parnassus Mid Cap has no effect on the direction of Large Cap i.e., Large Cap and Parnassus Mid go up and down completely randomly.

Pair Corralation between Large Cap and Parnassus Mid

Assuming the 90 days horizon Large Cap E is expected to generate 0.62 times more return on investment than Parnassus Mid. However, Large Cap E is 1.62 times less risky than Parnassus Mid. It trades about 0.12 of its potential returns per unit of risk. Parnassus Mid Cap is currently generating about -0.14 per unit of risk. If you would invest  2,603  in Large Cap E on September 9, 2024 and sell it today you would earn a total of  47.00  from holding Large Cap E or generate 1.81% return on investment over 90 days.

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

Large Cap E  vs.  Parnassus Mid Cap

Large Cap E

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap E are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Parnassus Mid Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Parnassus Mid Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Parnassus Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Parnassus Mid

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

The idea behind Large Cap E and Parnassus Mid Cap 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.