Correlation Between Large Cap and Commodities Strategy

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

Diversification Opportunities for Large Cap and Commodities Strategy

-0.27

Correlation Coefficient

Large Cap  Commodities Strategy

Very good diversification

The 3 months correlation between Large and Commodities is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap E and Commodities Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commodities Strategy 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 Commodities Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commodities Strategy has no effect on the direction of Large Cap i.e., Large Cap and Commodities Strategy go up and down completely randomly.

Pair Corralation between Large Cap and Commodities Strategy

Assuming the 90 days horizon Large Cap E is expected to under-perform the Commodities Strategy. In addition to that, Large Cap is 7.94 times more volatile than Commodities Strategy Fund. It trades about -0.26 of its total potential returns per unit of risk. Commodities Strategy Fund is currently generating about 0.33 per unit of volatility. If you would invest  2,928  in Commodities Strategy Fund on October 8, 2024 and sell it today you would earn a total of  107.00  from holding Commodities Strategy Fund or generate 3.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Large Cap E  vs.  Commodities Strategy Fund

Large Cap E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Commodities Strategy

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Commodities Strategy Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Commodities Strategy 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 Commodities Strategy

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

The idea behind Large Cap E and Commodities Strategy Fund 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.