Correlation Between Large Cap and Global Centrated

Can any of the company-specific risk be diversified away by investing in both Large Cap and Global Centrated 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 Global Centrated 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 Global Centrated Portfolio, you can compare the effects of market volatilities on Large Cap and Global Centrated 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 Global Centrated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Global Centrated.

Diversification Opportunities for Large Cap and Global Centrated

0.79

Correlation Coefficient

Large Cap  Global Centrated

Poor diversification

The 3 months correlation between Large and Global is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Equity and Global Centrated Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Centrated Por 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 Global Centrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Centrated Por has no effect on the direction of Large Cap i.e., Large Cap and Global Centrated go up and down completely randomly.

Pair Corralation between Large Cap and Global Centrated

Assuming the 90 days horizon Large Cap Equity is expected to generate 0.96 times more return on investment than Global Centrated. However, Large Cap Equity is 1.04 times less risky than Global Centrated. It trades about 0.05 of its potential returns per unit of risk. Global Centrated Portfolio is currently generating about -0.03 per unit of risk. If you would invest  2,638  in Large Cap Equity on September 25, 2024 and sell it today you would earn a total of  39.00  from holding Large Cap Equity or generate 1.48% 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.  Global Centrated Portfolio

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.

Global Centrated Por

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Centrated Portfolio are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Centrated is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Global Centrated

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

The idea behind Large Cap Equity and Global Centrated Portfolio 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.