Correlation Between Optimum Small and Optimum Large

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

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

Diversification Opportunities for Optimum Small and Optimum Large

0.95

Correlation Coefficient

Optimum Small  Optimum Large

Almost no diversification

The 3 months correlation between Optimum and Optimum is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Optimum Small Mid Cap and Optimum Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Large Cap and Optimum Small 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 Small Mid Cap are associated (or correlated) with Optimum Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Large Cap has no effect on the direction of Optimum Small i.e., Optimum Small and Optimum Large go up and down completely randomly.

Pair Corralation between Optimum Small and Optimum Large

Assuming the 90 days horizon Optimum Small Mid Cap is expected to generate 1.69 times more return on investment than Optimum Large. However, Optimum Small is 1.69 times more volatile than Optimum Large Cap. It trades about 0.17 of its potential returns per unit of risk. Optimum Large Cap is currently generating about 0.12 per unit of risk. If you would invest  1,155  in Optimum Small Mid Cap on September 3, 2024 and sell it today you would earn a total of  136.00  from holding Optimum Small Mid Cap or generate 11.77% return on investment over 90 days.

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

Optimum Small Mid Cap  vs.  Optimum Large Cap

Optimum Small Mid

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optimum Small Mid Cap are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Optimum Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Optimum Large Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Optimum Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Optimum Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Optimum Small and Optimum Large

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

The idea behind Optimum Small Mid Cap and Optimum 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.