Correlation Between Vela Large and M Large

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Can any of the company-specific risk be diversified away by investing in both Vela Large and M 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 Vela Large and M Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vela Large Cap and M Large Cap, you can compare the effects of market volatilities on Vela Large and M 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 Vela Large with a short position of M Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vela Large and M Large.

Diversification Opportunities for Vela Large and M Large

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between VELA and MTCGX is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Vela Large Cap and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap and Vela 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 Vela Large Cap are associated (or correlated) with M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Vela Large i.e., Vela Large and M Large go up and down completely randomly.

Pair Corralation between Vela Large and M Large

Assuming the 90 days horizon Vela Large is expected to generate 1.56 times less return on investment than M Large. But when comparing it to its historical volatility, Vela Large Cap is 1.84 times less risky than M Large. It trades about 0.22 of its potential returns per unit of risk. M Large Cap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,599  in M Large Cap on September 6, 2024 and sell it today you would earn a total of  142.00  from holding M Large Cap or generate 3.95% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Vela Large Cap  vs.  M Large Cap

 Performance 
       Timeline  
Vela Large Cap 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Vela Large Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vela Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.
M Large Cap 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, M Large showed solid returns over the last few months and may actually be approaching a breakup point.

Vela Large and M Large Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Vela Large and M Large

The main advantage of trading using opposite Vela Large and M Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vela Large position performs unexpectedly, M 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 M Large will offset losses from the drop in M Large's long position.
The idea behind Vela Large Cap and M 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.
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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