Correlation Between Plumb Balanced and M Large

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

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

Diversification Opportunities for Plumb Balanced and M Large

0.37

Correlation Coefficient

Plumb Balanced  M Large

Weak diversification

The 3 months correlation between Plumb and MTCGX is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Plumb Balanced and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap and Plumb Balanced 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 Plumb Balanced are associated (or correlated) with M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Plumb Balanced i.e., Plumb Balanced and M Large go up and down completely randomly.

Pair Corralation between Plumb Balanced and M Large

Assuming the 90 days horizon Plumb Balanced is expected to generate 0.51 times more return on investment than M Large. However, Plumb Balanced is 1.97 times less risky than M Large. It trades about 0.03 of its potential returns per unit of risk. M Large Cap is currently generating about -0.13 per unit of risk. If you would invest  3,458  in Plumb Balanced on December 19, 2024 and sell it today you would earn a total of  53.00  from holding Plumb Balanced or generate 1.53% return on investment over 90 days.

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

Plumb Balanced  vs.  M Large Cap

Plumb Balanced

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Plumb Balanced are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Plumb Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Plumb Balanced and M Large

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

The idea behind Plumb Balanced and M 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.