Correlation Between M Large and Thornburg Value

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

Diversification Opportunities for M Large and Thornburg Value

0.86

Correlation Coefficient

M Large  Thornburg Value

Very poor diversification

The 3 months correlation between MTCGX and Thornburg is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Thornburg Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Value 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 Thornburg Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Value has no effect on the direction of M Large i.e., M Large and Thornburg Value go up and down completely randomly.

Pair Corralation between M Large and Thornburg Value

Assuming the 90 days horizon M Large Cap is expected to generate 1.23 times more return on investment than Thornburg Value. However, M Large is 1.23 times more volatile than Thornburg Value Fund. It trades about -0.09 of its potential returns per unit of risk. Thornburg Value Fund is currently generating about -0.14 per unit of risk. If you would invest  3,340  in M Large Cap on December 29, 2024 and sell it today you would lose (321.00) from holding M Large Cap or give up 9.61% of portfolio value over 90 days.

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

M Large Cap  vs.  Thornburg Value Fund

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.

Thornburg Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thornburg Value Fund 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.

Pair Trading with M Large and Thornburg Value

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

The idea behind M Large Cap and Thornburg Value Fund 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.