Correlation Between Total Market and Large Cap
Can any of the company-specific risk be diversified away by investing in both Total Market 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 Total Market and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Total Market Portfolio and Large Cap Growth, you can compare the effects of market volatilities on Total Market 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 Total Market with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Market and Large Cap.
Diversification Opportunities for Total Market and Large Cap
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Total and Large is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Total Market Portfolio and Large Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Growth and Total Market 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 Total Market Portfolio 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 Growth has no effect on the direction of Total Market i.e., Total Market and Large Cap go up and down completely randomly.
Pair Corralation between Total Market and Large Cap
Assuming the 90 days horizon Total Market Portfolio is expected to generate 1.23 times more return on investment than Large Cap. However, Total Market is 1.23 times more volatile than Large Cap Growth. It trades about 0.3 of its potential returns per unit of risk. Large Cap Growth is currently generating about 0.21 per unit of risk. If you would invest 2,018 in Total Market Portfolio on August 27, 2024 and sell it today you would earn a total of 164.00 from holding Total Market Portfolio or generate 8.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Total Market Portfolio vs. Large Cap Growth
Performance |
| Timeline |
| Total Market Portfolio |
| Large Cap Growth |
Total Market and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Total Market and Large Cap
The main advantage of trading using opposite Total Market and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Market 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.| Total Market vs. Edgewood Growth Fund | Total Market vs. Johcm International Select | Total Market vs. Invesco Senior Loan | Total Market vs. Doubleline Shiller Enhanced |
| Large Cap vs. Glenmede International Secured | Large Cap vs. Equity Income Portfolio | Large Cap vs. Woman In Leadership | Large Cap vs. Responsible Esg Equity |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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