Correlation Between M Large and Strategic Allocation

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

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

Diversification Opportunities for M Large and Strategic Allocation

0.7

Correlation Coefficient

M Large  Strategic Allocation

Poor diversification

The 3 months correlation between MTCGX and Strategic is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Strategic Allocation Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Allocation and M Large 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 M Large Cap are associated (or correlated) with Strategic Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Allocation has no effect on the direction of M Large i.e., M Large and Strategic Allocation go up and down completely randomly.

Pair Corralation between M Large and Strategic Allocation

Assuming the 90 days horizon M Large Cap is expected to under-perform the Strategic Allocation. In addition to that, M Large is 2.61 times more volatile than Strategic Allocation Moderate. It trades about -0.18 of its total potential returns per unit of risk. Strategic Allocation Moderate is currently generating about -0.35 per unit of volatility. If you would invest  676.00  in Strategic Allocation Moderate on October 11, 2024 and sell it today you would lose (46.00) from holding Strategic Allocation Moderate or give up 6.8% of portfolio value over 90 days.

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

M Large Cap  vs.  Strategic Allocation Moderate

M Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Strategic Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with M Large and Strategic Allocation

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

The idea behind M Large Cap and Strategic Allocation Moderate 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.