Correlation Between Sarofim Equity and M Large

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

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

Diversification Opportunities for Sarofim Equity and M Large

0.83

Correlation Coefficient

Sarofim Equity  M Large

Very poor diversification

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

Pair Corralation between Sarofim Equity and M Large

Assuming the 90 days horizon Sarofim Equity is expected to under-perform the M Large. In addition to that, Sarofim Equity is 1.06 times more volatile than M Large Cap. It trades about -0.13 of its total potential returns per unit of risk. M Large Cap is currently generating about -0.1 per unit of volatility. If you would invest  3,741  in M Large Cap on December 3, 2024 and sell it today you would lose (435.00) from holding M Large Cap or give up 11.63% of portfolio value over 90 days.

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

Sarofim Equity  vs.  M Large Cap

Sarofim Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sarofim Equity 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 primary indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

M Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days M Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Sarofim Equity and M Large

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

The idea behind Sarofim Equity and M Large 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.