Correlation Between Nicholas Fund and Large-cap Growth

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

By analyzing existing cross correlation between Nicholas Fund Inc and Large Cap Growth Profund, you can compare the effects of market volatilities on Nicholas Fund and Large-cap Growth 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 Nicholas Fund with a short position of Large-cap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nicholas Fund and Large-cap Growth.

Diversification Opportunities for Nicholas Fund and Large-cap Growth

0.87

Correlation Coefficient

Nicholas Fund  Large-cap Growth

Very poor diversification

The 3 months correlation between Nicholas and Large-cap is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Nicholas Fund Inc and Large Cap Growth Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Nicholas Fund 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 Nicholas Fund Inc are associated (or correlated) with Large-cap Growth. 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 Growth has no effect on the direction of Nicholas Fund i.e., Nicholas Fund and Large-cap Growth go up and down completely randomly.

Pair Corralation between Nicholas Fund and Large-cap Growth

Assuming the 90 days horizon Nicholas Fund Inc is expected to generate 0.61 times more return on investment than Large-cap Growth. However, Nicholas Fund Inc is 1.65 times less risky than Large-cap Growth. It trades about -0.09 of its potential returns per unit of risk. Large Cap Growth Profund is currently generating about -0.11 per unit of risk. If you would invest  9,355  in Nicholas Fund Inc on December 28, 2024 and sell it today you would lose (450.00) from holding Nicholas Fund Inc or give up 4.81% of portfolio value over 90 days.

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

Nicholas Fund Inc  vs.  Large Cap Growth Profund

Nicholas Fund

Risk-Adjusted Performance

Very Weak

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

Large Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Growth Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Nicholas Fund and Large-cap Growth

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

The idea behind Nicholas Fund Inc and Large Cap Growth Profund 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.