Correlation Between Large Company and Wilshire 5000

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

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

Diversification Opportunities for Large Company and Wilshire 5000

0.98

Correlation Coefficient

Large Company  Wilshire 5000

Almost no diversification

The 3 months correlation between Large and Wilshire is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Growth and Wilshire 5000 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire 5000 Index and Large Company 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 Pany Growth are associated (or correlated) with Wilshire 5000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire 5000 Index has no effect on the direction of Large Company i.e., Large Company and Wilshire 5000 go up and down completely randomly.

Pair Corralation between Large Company and Wilshire 5000

Assuming the 90 days horizon Large Pany Growth is expected to under-perform the Wilshire 5000. In addition to that, Large Company is 1.56 times more volatile than Wilshire 5000 Index. It trades about -0.09 of its total potential returns per unit of risk. Wilshire 5000 Index is currently generating about -0.07 per unit of volatility. If you would invest  3,323  in Wilshire 5000 Index on December 27, 2024 and sell it today you would lose (145.00) from holding Wilshire 5000 Index or give up 4.36% of portfolio value over 90 days.

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

Large Pany Growth  vs.  Wilshire 5000 Index

Large Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Pany Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Wilshire 5000 Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wilshire 5000 Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Wilshire 5000 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Company and Wilshire 5000

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

The idea behind Large Pany Growth and Wilshire 5000 Index 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.