Correlation Between Ivy Large and Ivy Natural

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

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

Diversification Opportunities for Ivy Large and Ivy Natural

0.72

Correlation Coefficient

Ivy Large  Ivy Natural

Poor diversification

The 3 months correlation between Ivy and Ivy is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Ivy Large Cap and Ivy Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Natural Resources and Ivy Large 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 Large Cap are associated (or correlated) with Ivy Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Natural Resources has no effect on the direction of Ivy Large i.e., Ivy Large and Ivy Natural go up and down completely randomly.

Pair Corralation between Ivy Large and Ivy Natural

Assuming the 90 days horizon Ivy Large Cap is expected to under-perform the Ivy Natural. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ivy Large Cap is 1.09 times less risky than Ivy Natural. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Ivy Natural Resources is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,204  in Ivy Natural Resources on December 17, 2024 and sell it today you would lose (22.00) from holding Ivy Natural Resources or give up 1.83% of portfolio value over 90 days.

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

Ivy Large Cap  vs.  Ivy Natural Resources

Ivy Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ivy Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Ivy Natural Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ivy Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Ivy Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ivy Large and Ivy Natural

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

The idea behind Ivy Large Cap and Ivy Natural Resources 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.