Correlation Between Ivy Small and Optimum Large

Can any of the company-specific risk be diversified away by investing in both Ivy Small and Optimum 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 Optimum 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 Optimum Large Cap, you can compare the effects of market volatilities on Ivy Small and Optimum 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 Optimum Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ivy Small and Optimum Large.

Diversification Opportunities for Ivy Small and Optimum Large

0.79

Correlation Coefficient

Ivy Small  Optimum Large

Poor diversification

The 3 months correlation between Ivy and Optimum is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Ivy Small Cap and Optimum Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum 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 Optimum Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Large Cap has no effect on the direction of Ivy Small i.e., Ivy Small and Optimum Large go up and down completely randomly.

Pair Corralation between Ivy Small and Optimum Large

Assuming the 90 days horizon Ivy Small is expected to generate 1.1 times less return on investment than Optimum Large. In addition to that, Ivy Small is 1.26 times more volatile than Optimum Large Cap. It trades about 0.08 of its total potential returns per unit of risk. Optimum Large Cap is currently generating about 0.11 per unit of volatility. If you would invest  1,430  in Optimum Large Cap on August 30, 2024 and sell it today you would earn a total of  102.00  from holding Optimum Large Cap or generate 7.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Ivy Small Cap  vs.  Optimum Large Cap

Ivy Small Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ivy Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ivy Small may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Optimum Large Cap

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Optimum Large Cap are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Optimum Large may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ivy Small and Optimum Large

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

The idea behind Ivy Small Cap and Optimum 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.