Correlation Between Intel and Large Cap

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

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

Diversification Opportunities for Intel and Large Cap

-0.16

Correlation Coefficient

Intel  Large Cap

Good diversification

The 3 months correlation between Intel and Large is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Intel and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Intel 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 Intel 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 E has no effect on the direction of Intel i.e., Intel and Large Cap go up and down completely randomly.

Pair Corralation between Intel and Large Cap

Given the investment horizon of 90 days Intel is expected to generate 4.8 times more return on investment than Large Cap. However, Intel is 4.8 times more volatile than Large Cap E. It trades about 0.09 of its potential returns per unit of risk. Large Cap E is currently generating about -0.02 per unit of risk. If you would invest  1,982  in Intel on December 28, 2024 and sell it today you would earn a total of  380.00  from holding Intel or generate 19.17% return on investment over 90 days.

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

Intel  vs.  Large Cap E

Intel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Intel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Intel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Large Cap E

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap E 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.

Pair Trading with Intel and Large Cap

The main advantage of trading using opposite Intel and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intel 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 Intel and Large Cap E 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.