Correlation Between Large Cap and Amg River

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

By analyzing existing cross correlation between Large Cap Equity and Amg River Road, you can compare the effects of market volatilities on Large Cap and Amg River 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 Amg River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Amg River.

Diversification Opportunities for Large Cap and Amg River

-0.17

Correlation Coefficient

Large Cap  Amg River

Good diversification

The 3 months correlation between Large and Amg is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Equity and Amg River Road in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amg River Road 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 Equity are associated (or correlated) with Amg River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amg River Road has no effect on the direction of Large Cap i.e., Large Cap and Amg River go up and down completely randomly.

Pair Corralation between Large Cap and Amg River

Assuming the 90 days horizon Large Cap Equity is expected to under-perform the Amg River. In addition to that, Large Cap is 1.1 times more volatile than Amg River Road. It trades about -0.07 of its total potential returns per unit of risk. Amg River Road is currently generating about 0.1 per unit of volatility. If you would invest  1,296  in Amg River Road on December 28, 2024 and sell it today you would earn a total of  61.00  from holding Amg River Road or generate 4.71% return on investment over 90 days.

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

Large Cap Equity  vs.  Amg River Road

Large Cap Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Equity has generated negative risk-adjusted returns adding no value to fund investors. 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.

Amg River Road

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amg River Road are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Amg River 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 Amg River

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

The idea behind Large Cap Equity and Amg River Road 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.