Correlation Between Oakmark Select and Large Cap

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

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

Diversification Opportunities for Oakmark Select and Large Cap

0.85

Correlation Coefficient

Oakmark Select  Large Cap

Very poor diversification

The 3 months correlation between Oakmark and Large is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Oakmark Select 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 Oakmark Select 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 Oakmark Select are associated (or correlated) with Large Cap. 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 Oakmark Select i.e., Oakmark Select and Large Cap go up and down completely randomly.

Pair Corralation between Oakmark Select and Large Cap

Assuming the 90 days horizon Oakmark Select is expected to under-perform the Large Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Oakmark Select is 1.19 times less risky than Large Cap. The mutual fund trades about -0.29 of its potential returns per unit of risk. The Large Cap Growth Profund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,474  in Large Cap Growth Profund on September 26, 2024 and sell it today you would earn a total of  186.00  from holding Large Cap Growth Profund or generate 4.16% return on investment over 90 days.

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

Oakmark Select  vs.  Large Cap Growth Profund

Oakmark Select

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oakmark Select are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Oakmark Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Large Cap Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Oakmark Select and Large Cap

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

The idea behind Oakmark Select 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.