Correlation Between Deutsche Large and Deutsche Small

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

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

Diversification Opportunities for Deutsche Large and Deutsche Small

0.83

Correlation Coefficient

Deutsche Large  Deutsche Small

Very poor diversification

The 3 months correlation between Deutsche and Deutsche is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Large Cap and Deutsche Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Small Cap and Deutsche Large 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 Deutsche Large Cap are associated (or correlated) with Deutsche Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Small Cap has no effect on the direction of Deutsche Large i.e., Deutsche Large and Deutsche Small go up and down completely randomly.

Pair Corralation between Deutsche Large and Deutsche Small

Assuming the 90 days horizon Deutsche Large Cap is expected to generate 0.87 times more return on investment than Deutsche Small. However, Deutsche Large Cap is 1.15 times less risky than Deutsche Small. It trades about 0.2 of its potential returns per unit of risk. Deutsche Small Cap is currently generating about 0.1 per unit of risk. If you would invest  8,673  in Deutsche Large Cap on September 13, 2024 and sell it today you would earn a total of  1,023  from holding Deutsche Large Cap or generate 11.8% return on investment over 90 days.

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

Deutsche Large Cap  vs.  Deutsche Small Cap

Deutsche Large Cap

Risk-Adjusted Performance

15 of 100

Good

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

Deutsche Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Deutsche Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deutsche Large and Deutsche Small

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

The idea behind Deutsche Large Cap and Deutsche Small Cap 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.