Correlation Between Large Cap and Wasatch Small

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

Diversification Opportunities for Large Cap and Wasatch Small

-0.15

Correlation Coefficient

Large Cap  Wasatch Small

Good diversification

The 3 months correlation between Large and Wasatch is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Wasatch Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Small Cap and Large Cap 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 Wasatch Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Small Cap has no effect on the direction of Large Cap i.e., Large Cap and Wasatch Small go up and down completely randomly.

Pair Corralation between Large Cap and Wasatch Small

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.71 times more return on investment than Wasatch Small. However, Large Cap Growth Profund is 1.42 times less risky than Wasatch Small. It trades about 0.11 of its potential returns per unit of risk. Wasatch Small Cap is currently generating about 0.02 per unit of risk. If you would invest  2,893  in Large Cap Growth Profund on September 26, 2024 and sell it today you would earn a total of  1,830  from holding Large Cap Growth Profund or generate 63.26% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Wasatch Small Cap

Large Cap Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wasatch Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wasatch Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Large Cap and Wasatch Small

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

The idea behind Large Cap Growth Profund and Wasatch Small 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.