Correlation Between Global Advantage and Large Cap

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

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

Diversification Opportunities for Global Advantage and Large Cap

0.62

Correlation Coefficient

Global Advantage  Large Cap

Poor diversification

The 3 months correlation between Global and Large is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Global Advantage Portfolio and Large Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Equity and Global Advantage 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 Global Advantage Portfolio are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Equity has no effect on the direction of Global Advantage i.e., Global Advantage and Large Cap go up and down completely randomly.

Pair Corralation between Global Advantage and Large Cap

Assuming the 90 days horizon Global Advantage Portfolio is expected to under-perform the Large Cap. In addition to that, Global Advantage is 38.69 times more volatile than Large Cap Equity. It trades about -0.09 of its total potential returns per unit of risk. Large Cap Equity is currently generating about 0.22 per unit of volatility. If you would invest  2,670  in Large Cap Equity on October 6, 2024 and sell it today you would earn a total of  7.00  from holding Large Cap Equity or generate 0.26% return on investment over 90 days.

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

Global Advantage Portfolio  vs.  Large Cap Equity

Global Advantage Por

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global Advantage Portfolio are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Advantage showed solid returns over the last few months and may actually be approaching a breakup point.

Large Cap Equity

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Advantage and Large Cap

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

The idea behind Global Advantage Portfolio and Large Cap Equity 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.