Correlation Between Large-cap Growth and Global Diversified

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

By analyzing existing cross correlation between Large Cap Growth Profund and Global Diversified Income, you can compare the effects of market volatilities on Large-cap Growth and Global Diversified 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 Large-cap Growth with a short position of Global Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large-cap Growth and Global Diversified.

Diversification Opportunities for Large-cap Growth and Global Diversified

0.27

Correlation Coefficient

Large-cap Growth  Global Diversified

Modest diversification

The 3 months correlation between Large-cap and Global is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Global Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Diversified Income and Large-cap Growth 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 Large Cap Growth Profund are associated (or correlated) with Global Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Diversified Income has no effect on the direction of Large-cap Growth i.e., Large-cap Growth and Global Diversified go up and down completely randomly.

Pair Corralation between Large-cap Growth and Global Diversified

Assuming the 90 days horizon Large Cap Growth Profund is expected to under-perform the Global Diversified. In addition to that, Large-cap Growth is 6.78 times more volatile than Global Diversified Income. It trades about -0.03 of its total potential returns per unit of risk. Global Diversified Income is currently generating about 0.06 per unit of volatility. If you would invest  1,192  in Global Diversified Income on December 4, 2024 and sell it today you would earn a total of  7.00  from holding Global Diversified Income or generate 0.59% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Global Diversified Income

Large Cap Growth

Risk-Adjusted Performance

Very Weak

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

Global Diversified Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Diversified Income are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large-cap Growth and Global Diversified

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

The idea behind Large Cap Growth Profund and Global Diversified Income 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.