Correlation Between Floating Rate and Fundamental Large

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

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

Diversification Opportunities for Floating Rate and Fundamental Large

0.81

Correlation Coefficient

Floating Rate  Fundamental Large

Very poor diversification

The 3 months correlation between Floating and Fundamental is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Floating Rate Fund and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Large Cap and Floating Rate 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 Floating Rate Fund are associated (or correlated) with Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of Floating Rate i.e., Floating Rate and Fundamental Large go up and down completely randomly.

Pair Corralation between Floating Rate and Fundamental Large

Assuming the 90 days horizon Floating Rate is expected to generate 4.62 times less return on investment than Fundamental Large. But when comparing it to its historical volatility, Floating Rate Fund is 5.34 times less risky than Fundamental Large. It trades about 0.24 of its potential returns per unit of risk. Fundamental Large Cap is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  7,652  in Fundamental Large Cap on September 12, 2024 and sell it today you would earn a total of  732.00  from holding Fundamental Large Cap or generate 9.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Floating Rate Fund  vs.  Fundamental Large Cap

Floating Rate

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fundamental Large Cap

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 16 (%) 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.

Pair Trading with Floating Rate and Fundamental Large

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

The idea behind Floating Rate Fund and Fundamental 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.