Correlation Between Locorr Dynamic and Index Plus

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

By analyzing existing cross correlation between Locorr Dynamic Equity and Index Plus Largecap, you can compare the effects of market volatilities on Locorr Dynamic and Index Plus 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 Locorr Dynamic with a short position of Index Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Locorr Dynamic and Index Plus.

Diversification Opportunities for Locorr Dynamic and Index Plus

0.57

Correlation Coefficient

Locorr Dynamic  Index Plus

Very weak diversification

The 3 months correlation between Locorr and Index is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Locorr Dynamic Equity and Index Plus Largecap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Index Plus Largecap and Locorr Dynamic 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 Locorr Dynamic Equity are associated (or correlated) with Index Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Index Plus Largecap has no effect on the direction of Locorr Dynamic i.e., Locorr Dynamic and Index Plus go up and down completely randomly.

Pair Corralation between Locorr Dynamic and Index Plus

Assuming the 90 days horizon Locorr Dynamic Equity is expected to under-perform the Index Plus. But the mutual fund apears to be less risky and, when comparing its historical volatility, Locorr Dynamic Equity is 1.73 times less risky than Index Plus. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Index Plus Largecap is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,047  in Index Plus Largecap on December 2, 2024 and sell it today you would lose (76.00) from holding Index Plus Largecap or give up 2.49% of portfolio value over 90 days.

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

Locorr Dynamic Equity  vs.  Index Plus Largecap

Locorr Dynamic Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Locorr Dynamic Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Locorr Dynamic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Index Plus Largecap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Index Plus Largecap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Index Plus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Locorr Dynamic and Index Plus

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

The idea behind Locorr Dynamic Equity and Index Plus Largecap 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.