Correlation Between Blue Chip and Broad Cap
Can any of the company-specific risk be diversified away by investing in both Blue Chip and Broad Cap 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 Blue Chip and Broad Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Growth and Broad Cap Value, you can compare the effects of market volatilities on Blue Chip and Broad Cap 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 Blue Chip with a short position of Broad Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Broad Cap.
Diversification Opportunities for Blue Chip and Broad Cap
Very poor diversification
The 3 months correlation between Blue and Broad is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Growth and Broad Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broad Cap Value and Blue Chip 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 Blue Chip Growth are associated (or correlated) with Broad Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broad Cap Value has no effect on the direction of Blue Chip i.e., Blue Chip and Broad Cap go up and down completely randomly.
Pair Corralation between Blue Chip and Broad Cap
Assuming the 90 days horizon Blue Chip Growth is expected to under-perform the Broad Cap. In addition to that, Blue Chip is 1.92 times more volatile than Broad Cap Value. It trades about -0.15 of its total potential returns per unit of risk. Broad Cap Value is currently generating about -0.03 per unit of volatility. If you would invest 1,478 in Broad Cap Value on December 28, 2024 and sell it today you would lose (30.00) from holding Broad Cap Value or give up 2.03% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 98.36% |
Values | Daily Returns |
Blue Chip Growth vs. Broad Cap Value
Performance |
Timeline |
Blue Chip Growth |
Broad Cap Value |
Blue Chip and Broad Cap Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Blue Chip and Broad Cap
The main advantage of trading using opposite Blue Chip and Broad Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip position performs unexpectedly, Broad Cap 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 Broad Cap will offset losses from the drop in Broad Cap's long position.Blue Chip vs. Federated Municipal Ultrashort | Blue Chip vs. Flexible Bond Portfolio | Blue Chip vs. Limited Term Tax | Blue Chip vs. Ab Bond Inflation |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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