Correlation Between Fundamental Large and M Large

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

Diversification Opportunities for Fundamental Large and M Large

0.92

Correlation Coefficient

Fundamental Large  M Large

Almost no diversification

The 3 months correlation between Fundamental and MTCGX is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large 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 M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Fundamental Large i.e., Fundamental Large and M Large go up and down completely randomly.

Pair Corralation between Fundamental Large and M Large

Assuming the 90 days horizon Fundamental Large Cap is expected to generate 0.66 times more return on investment than M Large. However, Fundamental Large Cap is 1.51 times less risky than M Large. It trades about 0.19 of its potential returns per unit of risk. M Large Cap is currently generating about 0.12 per unit of risk. If you would invest  7,652  in Fundamental Large Cap on September 12, 2024 and sell it today you would earn a total of  659.00  from holding Fundamental Large Cap or generate 8.61% 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.  M Large Cap

Fundamental Large Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 15 (%) 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.

M Large Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, M Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fundamental Large and M Large

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

The idea behind Fundamental Large Cap and M Large 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..