Correlation Between Largecap and Money Market

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

By analyzing existing cross correlation between Largecap Sp 500 and Money Market Obligations, you can compare the effects of market volatilities on Largecap and Money Market 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 Largecap with a short position of Money Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap and Money Market.

Diversification Opportunities for Largecap and Money Market

0.42

Correlation Coefficient

Largecap  Money Market

Very weak diversification

The 3 months correlation between Largecap and Money is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Sp 500 and Money Market Obligations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Money Market Obligations and Largecap 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 Largecap Sp 500 are associated (or correlated) with Money Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Money Market Obligations has no effect on the direction of Largecap i.e., Largecap and Money Market go up and down completely randomly.

Pair Corralation between Largecap and Money Market

Assuming the 90 days horizon Largecap Sp 500 is expected to generate 5.86 times more return on investment than Money Market. However, Largecap is 5.86 times more volatile than Money Market Obligations. It trades about 0.11 of its potential returns per unit of risk. Money Market Obligations is currently generating about 0.14 per unit of risk. If you would invest  2,283  in Largecap Sp 500 on September 23, 2024 and sell it today you would earn a total of  571.00  from holding Largecap Sp 500 or generate 25.01% return on investment over 90 days.

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

Largecap Sp 500  vs.  Money Market Obligations

Largecap Sp 500

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Sp 500 are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Largecap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Money Market Obligations

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Largecap and Money Market

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

The idea behind Largecap Sp 500 and Money Market Obligations 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.