Correlation Between Ivy Small and Fundamental Large

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

By analyzing existing cross correlation between Ivy Small Cap and Fundamental Large Cap, you can compare the effects of market volatilities on Ivy Small and Fundamental 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 Ivy Small with a short position of Fundamental Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ivy Small and Fundamental Large.

Diversification Opportunities for Ivy Small and Fundamental Large

0.77

Correlation Coefficient

Ivy Small  Fundamental Large

Poor diversification

The 3 months correlation between Ivy and Fundamental is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ivy Small Cap and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Large Cap and Ivy Small 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 Ivy Small Cap are associated (or correlated) with Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of Ivy Small i.e., Ivy Small and Fundamental Large go up and down completely randomly.

Pair Corralation between Ivy Small and Fundamental Large

Assuming the 90 days horizon Ivy Small Cap is expected to under-perform the Fundamental Large. In addition to that, Ivy Small is 1.48 times more volatile than Fundamental Large Cap. It trades about -0.08 of its total potential returns per unit of risk. Fundamental Large Cap is currently generating about -0.09 per unit of volatility. If you would invest  6,765  in Fundamental Large Cap on December 21, 2024 and sell it today you would lose (377.00) from holding Fundamental Large Cap or give up 5.57% of portfolio value over 90 days.

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

Ivy Small Cap  vs.  Fundamental Large Cap

Ivy Small Cap

Risk-Adjusted Performance

Very Weak

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

Fundamental Large Cap

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ivy Small and Fundamental Large

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

The idea behind Ivy Small Cap and Fundamental 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.