Correlation Between Largecap Value and Strategic Asset

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

By analyzing existing cross correlation between Largecap Value Fund and Strategic Asset Management, you can compare the effects of market volatilities on Largecap Value and Strategic Asset 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 Value with a short position of Strategic Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap Value and Strategic Asset.

Diversification Opportunities for Largecap Value and Strategic Asset

0.96

Correlation Coefficient

Largecap Value  Strategic Asset

Almost no diversification

The 3 months correlation between Largecap and Strategic is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Value Fund and Strategic Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Asset Mana and Largecap Value 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 Value Fund are associated (or correlated) with Strategic Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Asset Mana has no effect on the direction of Largecap Value i.e., Largecap Value and Strategic Asset go up and down completely randomly.

Pair Corralation between Largecap Value and Strategic Asset

Assuming the 90 days horizon Largecap Value Fund is expected to under-perform the Strategic Asset. In addition to that, Largecap Value is 1.33 times more volatile than Strategic Asset Management. It trades about -0.01 of its total potential returns per unit of risk. Strategic Asset Management is currently generating about -0.01 per unit of volatility. If you would invest  1,612  in Strategic Asset Management on December 30, 2024 and sell it today you would lose (8.00) from holding Strategic Asset Management or give up 0.5% of portfolio value over 90 days.

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

Largecap Value Fund  vs.  Strategic Asset Management

Largecap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Largecap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Largecap Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Strategic Asset Mana

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Asset Management has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Strategic Asset 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 Value and Strategic Asset

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

The idea behind Largecap Value Fund and Strategic Asset Management 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.