Correlation Between Large Cap and Growth Opportunities
Can any of the company-specific risk be diversified away by investing in both Large Cap and Growth Opportunities 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 Cap and Growth Opportunities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Fund and Growth Opportunities Fund, you can compare the effects of market volatilities on Large Cap and Growth Opportunities 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 Cap with a short position of Growth Opportunities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Growth Opportunities.
Diversification Opportunities for Large Cap and Growth Opportunities
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Large and Growth is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Growth Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Opportunities and Large Cap 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 Cap Fund are associated (or correlated) with Growth Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Opportunities has no effect on the direction of Large Cap i.e., Large Cap and Growth Opportunities go up and down completely randomly.
Pair Corralation between Large Cap and Growth Opportunities
Assuming the 90 days horizon Large Cap Fund is expected to generate 0.78 times more return on investment than Growth Opportunities. However, Large Cap Fund is 1.28 times less risky than Growth Opportunities. It trades about 0.29 of its potential returns per unit of risk. Growth Opportunities Fund is currently generating about 0.17 per unit of risk. If you would invest 1,684 in Large Cap Fund on August 28, 2024 and sell it today you would earn a total of 89.00 from holding Large Cap Fund or generate 5.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Fund vs. Growth Opportunities Fund
Performance |
| Timeline |
| Large Cap Fund |
| Growth Opportunities |
Large Cap and Growth Opportunities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Growth Opportunities
The main advantage of trading using opposite Large Cap and Growth Opportunities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Growth Opportunities 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 Growth Opportunities will offset losses from the drop in Growth Opportunities' long position.| Large Cap vs. Wasatch Large Cap | Large Cap vs. Loomis Sayles Bond | Large Cap vs. Harbor International Fund | Large Cap vs. Equity Series Class |
| Growth Opportunities vs. Large Cap Fund | Growth Opportunities vs. Nicholas Ii Inc | Growth Opportunities vs. Mid Cap Value | Growth Opportunities vs. Tcw Relative Value |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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