Correlation Between Salient Alternative and Large Cap

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

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

Diversification Opportunities for Salient Alternative and Large Cap

0.96

Correlation Coefficient

Salient Alternative  Large Cap

Almost no diversification

The 3 months correlation between Salient and Large is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Salient Alternative Beta and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value and Salient Alternative 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 Salient Alternative Beta 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 Value has no effect on the direction of Salient Alternative i.e., Salient Alternative and Large Cap go up and down completely randomly.

Pair Corralation between Salient Alternative and Large Cap

Assuming the 90 days horizon Salient Alternative Beta is expected to under-perform the Large Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Salient Alternative Beta is 1.32 times less risky than Large Cap. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Large Cap Value is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,596  in Large Cap Value on December 29, 2024 and sell it today you would lose (40.00) from holding Large Cap Value or give up 1.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Salient Alternative Beta  vs.  Large Cap Value

Salient Alternative Beta

Risk-Adjusted Performance

Very Weak

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

Large Cap Value

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Salient Alternative and Large Cap

The main advantage of trading using opposite Salient Alternative and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salient Alternative 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 Salient Alternative Beta and Large Cap Value 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.