Correlation Between M Large and Fundamental Large

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

Diversification Opportunities for M Large and Fundamental Large

0.92

Correlation Coefficient

M Large  Fundamental Large

Almost no diversification

The 3 months correlation between MTCGX and Fundamental is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental 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 Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of M Large i.e., M Large and Fundamental Large go up and down completely randomly.

Pair Corralation between M Large and Fundamental Large

Assuming the 90 days horizon M Large is expected to generate 1.07 times less return on investment than Fundamental Large. In addition to that, M Large is 1.51 times more volatile than Fundamental Large Cap. It trades about 0.12 of its total potential returns per unit of risk. Fundamental Large Cap is currently generating about 0.19 per unit of volatility. If you would invest  7,652  in Fundamental Large Cap on September 12, 2024 and sell it today you would earn a total of  659.00  from holding Fundamental Large Cap or generate 8.61% return on investment over 90 days.

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

M Large Cap  vs.  Fundamental Large Cap

M Large Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, M Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fundamental Large Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fundamental Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with M Large and Fundamental Large

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

The idea behind M Large Cap and Fundamental 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.