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 Value, 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

0.97

Correlation Coefficient

Wilshire 5000  Large Company

Almost no diversification

The 3 months correlation between Wilshire and Large is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Wilshire 5000 Index and Large Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Pany Value 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 Value 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 Index is expected to generate 1.05 times more return on investment than Large Company. However, Wilshire 5000 is 1.05 times more volatile than Large Pany Value. It trades about 0.23 of its potential returns per unit of risk. Large Pany Value is currently generating about 0.19 per unit of risk. If you would invest  3,142  in Wilshire 5000 Index on September 5, 2024 and sell it today you would earn a total of  342.00  from holding Wilshire 5000 Index or generate 10.88% 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 Value

Wilshire 5000 Index

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wilshire 5000 Index are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Wilshire 5000 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Large Pany Value

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Pany Value are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Large Company may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Value 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.