Correlation Between Fundamental Large and Large Cap

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

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

Diversification Opportunities for Fundamental Large and Large Cap

0.04

Correlation Coefficient

Fundamental Large  Large Cap

Significant diversification

The 3 months correlation between Fundamental and Large is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Large Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Fundamental 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 Fundamental Large Cap 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 Growth has no effect on the direction of Fundamental Large i.e., Fundamental Large and Large Cap go up and down completely randomly.

Pair Corralation between Fundamental Large and Large Cap

Assuming the 90 days horizon Fundamental Large Cap is expected to under-perform the Large Cap. In addition to that, Fundamental Large is 2.29 times more volatile than Large Cap Growth Profund. It trades about -0.29 of its total potential returns per unit of risk. Large Cap Growth Profund is currently generating about -0.02 per unit of volatility. If you would invest  4,664  in Large Cap Growth Profund on October 7, 2024 and sell it today you would lose (31.00) from holding Large Cap Growth Profund or give up 0.66% of portfolio value over 90 days.

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

Fundamental Large Cap  vs.  Large Cap Growth Profund

Fundamental Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fundamental 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.

Large Cap Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fundamental Large and Large Cap

The main advantage of trading using opposite Fundamental Large and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large 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 Fundamental Large Cap and Large Cap Growth Profund 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.