Correlation Between Harding Loevner and Large Cap

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

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

Diversification Opportunities for Harding Loevner and Large Cap

0.17

Correlation Coefficient

Harding Loevner  Large Cap

Average diversification

The 3 months correlation between Harding and Large is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Harding Loevner Global and Large Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Equity and Harding Loevner 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 Harding Loevner Global 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 Equity has no effect on the direction of Harding Loevner i.e., Harding Loevner and Large Cap go up and down completely randomly.

Pair Corralation between Harding Loevner and Large Cap

Assuming the 90 days horizon Harding Loevner Global is expected to under-perform the Large Cap. In addition to that, Harding Loevner is 4.48 times more volatile than Large Cap Equity. It trades about -0.1 of its total potential returns per unit of risk. Large Cap Equity is currently generating about 0.03 per unit of volatility. If you would invest  2,645  in Large Cap Equity on October 26, 2024 and sell it today you would earn a total of  32.00  from holding Large Cap Equity or generate 1.21% return on investment over 90 days.

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

Harding Loevner Global  vs.  Large Cap Equity

Harding Loevner Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harding Loevner Global 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.

Large Cap Equity

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Equity are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, 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 Harding Loevner and Large Cap

The main advantage of trading using opposite Harding Loevner and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Harding Loevner 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 Harding Loevner Global and Large Cap Equity 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.