Correlation Between Sustainable Equity and Large Cap
Can any of the company-specific risk be diversified away by investing in both Sustainable Equity and Large Cap 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 Sustainable Equity and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sustainable Equity Fund and Large Cap E, you can compare the effects of market volatilities on Sustainable Equity and Large Cap 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 Sustainable Equity with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sustainable Equity and Large Cap.
Diversification Opportunities for Sustainable Equity and Large Cap
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sustainable and Large is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Sustainable Equity Fund and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Sustainable Equity 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 Sustainable Equity Fund are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Sustainable Equity i.e., Sustainable Equity and Large Cap go up and down completely randomly.
Pair Corralation between Sustainable Equity and Large Cap
Assuming the 90 days horizon Sustainable Equity Fund is expected to generate 0.38 times more return on investment than Large Cap. However, Sustainable Equity Fund is 2.65 times less risky than Large Cap. It trades about -0.29 of its potential returns per unit of risk. Large Cap E is currently generating about -0.26 per unit of risk. If you would invest 5,782 in Sustainable Equity Fund on October 14, 2024 and sell it today you would lose (535.00) from holding Sustainable Equity Fund or give up 9.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sustainable Equity Fund vs. Large Cap E
Performance |
| Timeline |
| Sustainable Equity |
| Large Cap E |
Sustainable Equity and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sustainable Equity and Large Cap
The main advantage of trading using opposite Sustainable Equity and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sustainable Equity position performs unexpectedly, Large Cap 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 Cap will offset losses from the drop in Large Cap's long position.| Sustainable Equity vs. Disciplined Growth Fund | Sustainable Equity vs. Focused Dynamic Growth | Sustainable Equity vs. Small Cap Growth | Sustainable Equity vs. Mid Cap Value |
| Large Cap vs. Moderately Aggressive Balanced | Large Cap vs. Qs Moderate Growth | Large Cap vs. College Retirement Equities | Large Cap vs. Voya Target Retirement |
Check out your portfolio center.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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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