Correlation Between Deutsche Small and Deutsche Large

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

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

Diversification Opportunities for Deutsche Small and Deutsche Large

0.88

Correlation Coefficient

Deutsche Small  Deutsche Large

Very poor diversification

The 3 months correlation between Deutsche and Deutsche is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Small Cap and Deutsche Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Large Cap and Deutsche Small 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 Small Cap are associated (or correlated) with Deutsche Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Large Cap has no effect on the direction of Deutsche Small i.e., Deutsche Small and Deutsche Large go up and down completely randomly.

Pair Corralation between Deutsche Small and Deutsche Large

Assuming the 90 days horizon Deutsche Small is expected to generate 1.61 times less return on investment than Deutsche Large. In addition to that, Deutsche Small is 1.11 times more volatile than Deutsche Large Cap. It trades about 0.13 of its total potential returns per unit of risk. Deutsche Large Cap is currently generating about 0.24 per unit of volatility. If you would invest  8,347  in Deutsche Large Cap on September 5, 2024 and sell it today you would earn a total of  1,280  from holding Deutsche Large Cap or generate 15.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Deutsche Small Cap  vs.  Deutsche Large Cap

Deutsche Small Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Small Cap are ranked lower than 10 (%) 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.

Deutsche Large Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Large Cap are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Deutsche Large showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deutsche Small and Deutsche Large

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

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