Correlation Between Large-cap Growth and Precious Metals

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

Diversification Opportunities for Large-cap Growth and Precious Metals

0.31

Correlation Coefficient

Large-cap Growth  Precious Metals

Weak diversification

The 3 months correlation between Large-cap and Precious is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Precious Metals Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals Ultr 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals Ultr has no effect on the direction of Large-cap Growth i.e., Large-cap Growth and Precious Metals go up and down completely randomly.

Pair Corralation between Large-cap Growth and Precious Metals

Assuming the 90 days horizon Large Cap Growth Profund is expected to under-perform the Precious Metals. But the mutual fund apears to be less risky and, when comparing its historical volatility, Large Cap Growth Profund is 2.33 times less risky than Precious Metals. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Precious Metals Ultrasector is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,824  in Precious Metals Ultrasector on December 5, 2024 and sell it today you would lose (3.00) from holding Precious Metals Ultrasector or give up 0.06% of portfolio value 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.  Precious Metals Ultrasector

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.

Precious Metals Ultr

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Ultrasector are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Precious Metals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Large-cap Growth and Precious Metals

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

The idea behind Large Cap Growth Profund and Precious Metals Ultrasector 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.