Correlation Between Ivy Large and Ivy Small

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

Diversification Opportunities for Ivy Large and Ivy Small

0.91

Correlation Coefficient

Ivy Large  Ivy Small

Almost no diversification

The 3 months correlation between Ivy and Ivy is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Ivy Large Cap and Ivy Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Small Cap 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 Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Small Cap has no effect on the direction of Ivy Large i.e., Ivy Large and Ivy Small go up and down completely randomly.

Pair Corralation between Ivy Large and Ivy Small

Assuming the 90 days horizon Ivy Large is expected to generate 1.14 times less return on investment than Ivy Small. But when comparing it to its historical volatility, Ivy Large Cap is 1.18 times less risky than Ivy Small. It trades about 0.09 of its potential returns per unit of risk. Ivy Small Cap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,537  in Ivy Small Cap on September 23, 2024 and sell it today you would earn a total of  431.00  from holding Ivy Small Cap or generate 28.04% return on investment over 90 days.

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

Ivy Large Cap  vs.  Ivy Small Cap

Ivy Large Cap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ivy Large Cap are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ivy Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ivy Small Cap

Risk-Adjusted Performance

2 of 100

Weak

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

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

The idea behind Ivy Large Cap and Ivy Small 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.