Correlation Between Fundamental Large and Us Small

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

Diversification Opportunities for Fundamental Large and Us Small

0.96

Correlation Coefficient

Fundamental Large  Us Small

Almost no diversification

The 3 months correlation between FUNDAMENTAL and RLESX is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Us Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Small Cap 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 Us Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Small Cap has no effect on the direction of Fundamental Large i.e., Fundamental Large and Us Small go up and down completely randomly.

Pair Corralation between Fundamental Large and Us Small

Assuming the 90 days horizon Fundamental Large is expected to generate 1.37 times less return on investment than Us Small. But when comparing it to its historical volatility, Fundamental Large Cap is 1.67 times less risky than Us Small. It trades about 0.19 of its potential returns per unit of risk. Us Small Cap is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,794  in Us Small Cap on September 2, 2024 and sell it today you would earn a total of  337.00  from holding Us Small Cap or generate 12.06% return on investment over 90 days.

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

Fundamental Large Cap  vs.  Us Small Cap

Fundamental Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fundamental Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Us Small Cap

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Us Small Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Us Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fundamental Large and Us Small

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

The idea behind Fundamental Large Cap and Us 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.