Correlation Between Wilshire 5000 and Large Company

Can any of the company-specific risk be diversified away by investing in both Wilshire 5000 and Large Company 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 Wilshire 5000 and Large Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Wilshire 5000 Index and Large Pany Growth, you can compare the effects of market volatilities on Wilshire 5000 and Large Company 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 Wilshire 5000 with a short position of Large Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wilshire 5000 and Large Company.

Diversification Opportunities for Wilshire 5000 and Large Company

0.99

Correlation Coefficient

Wilshire 5000  Large Company

No risk reduction

The 3 months correlation between Wilshire and Large is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Wilshire 5000 Index and Large Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany Growth and Wilshire 5000 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 Wilshire 5000 Index are associated (or correlated) with Large Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Pany Growth has no effect on the direction of Wilshire 5000 i.e., Wilshire 5000 and Large Company go up and down completely randomly.

Pair Corralation between Wilshire 5000 and Large Company

Assuming the 90 days horizon Wilshire 5000 is expected to generate 1.45 times less return on investment than Large Company. But when comparing it to its historical volatility, Wilshire 5000 Index is 1.39 times less risky than Large Company. It trades about 0.22 of its potential returns per unit of risk. Large Pany Growth is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  5,068  in Large Pany Growth on September 4, 2024 and sell it today you would earn a total of  783.00  from holding Large Pany Growth or generate 15.45% return on investment over 90 days.

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

Wilshire 5000 Index  vs.  Large Pany Growth

Wilshire 5000 Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wilshire 5000 Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Wilshire 5000 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Large Pany Growth

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Pany Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Large Company showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wilshire 5000 and Large Company

The main advantage of trading using opposite Wilshire 5000 and Large Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wilshire 5000 position performs unexpectedly, Large Company 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 Large Company will offset losses from the drop in Large Company's long position.

The idea behind Wilshire 5000 Index and Large Pany Growth 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.