Correlation Between M Large and Cb Large

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

Diversification Opportunities for M Large and Cb Large

0.67

Correlation Coefficient

M Large  Cb Large

Poor diversification

The 3 months correlation between MTCGX and CBLSX is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Cb Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cb Large Cap 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 Cb Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cb Large Cap has no effect on the direction of M Large i.e., M Large and Cb Large go up and down completely randomly.

Pair Corralation between M Large and Cb Large

Assuming the 90 days horizon M Large Cap is expected to generate 0.56 times more return on investment than Cb Large. However, M Large Cap is 1.78 times less risky than Cb Large. It trades about -0.09 of its potential returns per unit of risk. Cb Large Cap is currently generating about -0.14 per unit of risk. If you would invest  3,691  in M Large Cap on November 28, 2024 and sell it today you would lose (397.00) from holding M Large Cap or give up 10.76% 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.  Cb Large Cap

M Large Cap

Risk-Adjusted Performance

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.

Cb Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cb Large 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 March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with M Large and Cb Large

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

The idea behind M Large Cap and Cb Large 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.