Correlation Between Short Precious and Large Cap

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

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

Diversification Opportunities for Short Precious and Large Cap

-0.58

Correlation Coefficient

Short Precious  Large Cap

Excellent diversification

The 3 months correlation between Short and Large is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Short Precious Metals and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Short Precious 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 Short Precious Metals 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 E has no effect on the direction of Short Precious i.e., Short Precious and Large Cap go up and down completely randomly.

Pair Corralation between Short Precious and Large Cap

Assuming the 90 days horizon Short Precious Metals is expected to under-perform the Large Cap. In addition to that, Short Precious is 2.14 times more volatile than Large Cap E. It trades about -0.22 of its total potential returns per unit of risk. Large Cap E is currently generating about 0.17 per unit of volatility. If you would invest  2,055  in Large Cap E on October 23, 2024 and sell it today you would earn a total of  48.00  from holding Large Cap E or generate 2.34% return on investment over 90 days.

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

Short Precious Metals  vs.  Large Cap E

Short Precious Metals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Short Precious Metals are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Short Precious showed solid returns over the last few months and may actually be approaching a breakup point.

Large Cap E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Short Precious and Large Cap

The main advantage of trading using opposite Short Precious and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Short Precious 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 Short Precious Metals and Large Cap E 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.