Correlation Between Blue Chip and Capital Appreciation

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

By analyzing existing cross correlation between Blue Chip Growth and Capital Appreciation Fund, you can compare the effects of market volatilities on Blue Chip and Capital Appreciation 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 Blue Chip with a short position of Capital Appreciation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Capital Appreciation.

Diversification Opportunities for Blue Chip and Capital Appreciation

0.99

Correlation Coefficient

Blue Chip  Capital Appreciation

No risk reduction

The 3 months correlation between Blue and Capital is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Growth and Capital Appreciation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Appreciation and Blue Chip 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 Blue Chip Growth are associated (or correlated) with Capital Appreciation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Appreciation has no effect on the direction of Blue Chip i.e., Blue Chip and Capital Appreciation go up and down completely randomly.

Pair Corralation between Blue Chip and Capital Appreciation

Assuming the 90 days horizon Blue Chip Growth is expected to under-perform the Capital Appreciation. But the mutual fund apears to be less risky and, when comparing its historical volatility, Blue Chip Growth is 1.04 times less risky than Capital Appreciation. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Capital Appreciation Fund is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,552  in Capital Appreciation Fund on December 22, 2024 and sell it today you would lose (139.00) from holding Capital Appreciation Fund or give up 8.96% of portfolio value over 90 days.

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

Blue Chip Growth  vs.  Capital Appreciation Fund

Blue Chip Growth

Risk-Adjusted Performance

Very Weak

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

Capital Appreciation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital Appreciation Fund 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.

Pair Trading with Blue Chip and Capital Appreciation

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

The idea behind Blue Chip Growth and Capital Appreciation Fund 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.