Correlation Between Responsible Esg and Large Cap

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

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

Diversification Opportunities for Responsible Esg and Large Cap

0.99

Correlation Coefficient

Responsible Esg  Large Cap

No risk reduction

The 3 months correlation between Responsible and Large is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Responsible Esg Equity and Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Responsible Esg 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 Responsible Esg Equity are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Growth has no effect on the direction of Responsible Esg i.e., Responsible Esg and Large Cap go up and down completely randomly.

Pair Corralation between Responsible Esg and Large Cap

Assuming the 90 days horizon Responsible Esg Equity is expected to generate 0.7 times more return on investment than Large Cap. However, Responsible Esg Equity is 1.43 times less risky than Large Cap. It trades about -0.09 of its potential returns per unit of risk. Large Cap Growth is currently generating about -0.08 per unit of risk. If you would invest  1,583  in Responsible Esg Equity on December 30, 2024 and sell it today you would lose (87.00) from holding Responsible Esg Equity or give up 5.5% of portfolio value over 90 days.

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

Responsible Esg Equity  vs.  Large Cap Growth

Responsible Esg Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Responsible Esg Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Responsible Esg is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Responsible Esg and Large Cap

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

The idea behind Responsible Esg Equity and Large Cap Growth 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.