Correlation Between Largecap and Navigator Tactical

Can any of the company-specific risk be diversified away by investing in both Largecap and Navigator Tactical 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 Navigator Tactical 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 Navigator Tactical Fixed, you can compare the effects of market volatilities on Largecap and Navigator Tactical 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 Navigator Tactical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap and Navigator Tactical.

Diversification Opportunities for Largecap and Navigator Tactical

0.85

Correlation Coefficient

Largecap  Navigator Tactical

Very poor diversification

The 3 months correlation between Largecap and Navigator is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Sp 500 and Navigator Tactical Fixed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Navigator Tactical Fixed 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 Navigator Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Navigator Tactical Fixed has no effect on the direction of Largecap i.e., Largecap and Navigator Tactical go up and down completely randomly.

Pair Corralation between Largecap and Navigator Tactical

Assuming the 90 days horizon Largecap Sp 500 is expected to generate 4.45 times more return on investment than Navigator Tactical. However, Largecap is 4.45 times more volatile than Navigator Tactical Fixed. It trades about 0.2 of its potential returns per unit of risk. Navigator Tactical Fixed is currently generating about 0.17 per unit of risk. If you would invest  2,773  in Largecap Sp 500 on September 13, 2024 and sell it today you would earn a total of  234.00  from holding Largecap Sp 500 or generate 8.44% return on investment over 90 days.

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

Largecap Sp 500  vs.  Navigator Tactical Fixed

Largecap Sp 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Sp 500 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Largecap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Navigator Tactical Fixed

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Navigator Tactical Fixed are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Navigator Tactical 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 Navigator Tactical

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

The idea behind Largecap Sp 500 and Navigator Tactical Fixed 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.