Correlation Between Fundamental Large and Blue Chip

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

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

Diversification Opportunities for Fundamental Large and Blue Chip

0.96

Correlation Coefficient

Fundamental Large  Blue Chip

Almost no diversification

The 3 months correlation between Fundamental and Blue is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Blue Chip Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Growth and Fundamental 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 Fundamental Large Cap are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Growth has no effect on the direction of Fundamental Large i.e., Fundamental Large and Blue Chip go up and down completely randomly.

Pair Corralation between Fundamental Large and Blue Chip

Assuming the 90 days horizon Fundamental Large is expected to generate 1.85 times less return on investment than Blue Chip. But when comparing it to its historical volatility, Fundamental Large Cap is 1.68 times less risky than Blue Chip. It trades about 0.37 of its potential returns per unit of risk. Blue Chip Growth is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  6,078  in Blue Chip Growth on September 18, 2024 and sell it today you would earn a total of  371.00  from holding Blue Chip Growth or generate 6.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Fundamental Large Cap  vs.  Blue Chip Growth

Fundamental Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fundamental Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Blue Chip Growth

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Chip Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Blue Chip showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fundamental Large and Blue Chip

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

The idea behind Fundamental Large Cap and Blue Chip 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.