Correlation Between Large Capital and Adams Diversified

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

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

Diversification Opportunities for Large Capital and Adams Diversified

0.85

Correlation Coefficient

Large Capital  Adams Diversified

Very poor diversification

The 3 months correlation between Large and Adams is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Large Capital Growth and Adams Diversified Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Diversified Equity and Large Capital 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 Capital Growth are associated (or correlated) with Adams Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Diversified Equity has no effect on the direction of Large Capital i.e., Large Capital and Adams Diversified go up and down completely randomly.

Pair Corralation between Large Capital and Adams Diversified

Assuming the 90 days horizon Large Capital is expected to generate 1.32 times less return on investment than Adams Diversified. But when comparing it to its historical volatility, Large Capital Growth is 1.15 times less risky than Adams Diversified. It trades about 0.13 of its potential returns per unit of risk. Adams Diversified Equity is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,938  in Adams Diversified Equity on September 13, 2024 and sell it today you would earn a total of  135.00  from holding Adams Diversified Equity or generate 6.97% return on investment over 90 days.

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

Large Capital Growth  vs.  Adams Diversified Equity

Large Capital Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capital Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Large Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Adams Diversified Equity

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Diversified Equity are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Adams Diversified may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Large Capital and Adams Diversified

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

The idea behind Large Capital Growth and Adams Diversified Equity 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.