Correlation Between Optimum Large and Optimum Small-mid

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

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

Diversification Opportunities for Optimum Large and Optimum Small-mid

0.94

Correlation Coefficient

Optimum Large  Optimum Small-mid

Almost no diversification

The 3 months correlation between Optimum and Optimum is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Optimum Large Cap and Optimum Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Small Mid and Optimum 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 Optimum Large Cap are associated (or correlated) with Optimum Small-mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Small Mid has no effect on the direction of Optimum Large i.e., Optimum Large and Optimum Small-mid go up and down completely randomly.

Pair Corralation between Optimum Large and Optimum Small-mid

Assuming the 90 days horizon Optimum Large Cap is expected to under-perform the Optimum Small-mid. In addition to that, Optimum Large is 1.46 times more volatile than Optimum Small Mid Cap. It trades about -0.13 of its total potential returns per unit of risk. Optimum Small Mid Cap is currently generating about -0.1 per unit of volatility. If you would invest  1,084  in Optimum Small Mid Cap on December 30, 2024 and sell it today you would lose (71.00) from holding Optimum Small Mid Cap or give up 6.55% of portfolio value over 90 days.

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

Optimum Large Cap  vs.  Optimum Small Mid Cap

Optimum Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optimum 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.

Optimum Small Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optimum Small Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 Optimum Large and Optimum Small-mid

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

The idea behind Optimum Large Cap and Optimum Small Mid 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.