Correlation Between Ivy Mid and Ivy Large

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

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

Diversification Opportunities for Ivy Mid and Ivy Large

0.84

Correlation Coefficient

Ivy Mid  Ivy Large

Very poor diversification

The 3 months correlation between Ivy and Ivy is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ivy Mid Cap and Ivy Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Large Cap and Ivy Mid 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 Ivy Mid Cap are associated (or correlated) with Ivy Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Large Cap has no effect on the direction of Ivy Mid i.e., Ivy Mid and Ivy Large go up and down completely randomly.

Pair Corralation between Ivy Mid and Ivy Large

Assuming the 90 days horizon Ivy Mid is expected to generate 2.75 times less return on investment than Ivy Large. In addition to that, Ivy Mid is 1.3 times more volatile than Ivy Large Cap. It trades about 0.03 of its total potential returns per unit of risk. Ivy Large Cap is currently generating about 0.11 per unit of volatility. If you would invest  2,506  in Ivy Large Cap on September 5, 2024 and sell it today you would earn a total of  1,634  from holding Ivy Large Cap or generate 65.2% return on investment over 90 days.

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

Ivy Mid Cap  vs.  Ivy Large Cap

Ivy Mid Cap

Risk-Adjusted Performance

4 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ivy Mid Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Ivy Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ivy Large Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ivy Large Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ivy Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ivy Mid and Ivy Large

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

The idea behind Ivy Mid Cap and Ivy Large 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.