Correlation Between Large Cap and Advantage Portfolio

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

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

Diversification Opportunities for Large Cap and Advantage Portfolio

0.68

Correlation Coefficient

Large Cap  Advantage Portfolio

Poor diversification

The 3 months correlation between Large and Advantage is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Equity and Advantage Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantage Portfolio Class and Large Cap 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 Large Cap Equity are associated (or correlated) with Advantage Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantage Portfolio Class has no effect on the direction of Large Cap i.e., Large Cap and Advantage Portfolio go up and down completely randomly.

Pair Corralation between Large Cap and Advantage Portfolio

Assuming the 90 days horizon Large Cap is expected to generate 1.74 times less return on investment than Advantage Portfolio. But when comparing it to its historical volatility, Large Cap Equity is 1.98 times less risky than Advantage Portfolio. It trades about 0.14 of its potential returns per unit of risk. Advantage Portfolio Class is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,371  in Advantage Portfolio Class on September 26, 2024 and sell it today you would earn a total of  936.00  from holding Advantage Portfolio Class or generate 68.27% return on investment over 90 days.

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

Large Cap Equity  vs.  Advantage Portfolio Class

Large Cap Equity

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Equity are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Advantage Portfolio Class

Risk-Adjusted Performance

18 of 100

Solid

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

Pair Trading with Large Cap and Advantage Portfolio

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

The idea behind Large Cap Equity and Advantage Portfolio Class 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.

Check out your portfolio center.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.