Correlation Between Moderately Aggressive and Large Company

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

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

Diversification Opportunities for Moderately Aggressive and Large Company

0.77

Correlation Coefficient

Moderately Aggressive  Large Company

Poor diversification

The 3 months correlation between Moderately and Large is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Large Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany Growth and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Large Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Pany Growth has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Large Company go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Large Company

Assuming the 90 days horizon Moderately Aggressive is expected to generate 2.73 times less return on investment than Large Company. But when comparing it to its historical volatility, Moderately Aggressive Balanced is 2.16 times less risky than Large Company. It trades about 0.07 of its potential returns per unit of risk. Large Pany Growth is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,178  in Large Pany Growth on October 11, 2024 and sell it today you would earn a total of  2,143  from holding Large Pany Growth or generate 67.43% return on investment over 90 days.

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

Moderately Aggressive Balanced  vs.  Large Pany Growth

Moderately Aggressive

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderately Aggressive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Pany Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Moderately Aggressive and Large Company

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

The idea behind Moderately Aggressive Balanced and Large Pany 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .