Correlation Between Alternative Asset and Large Cap
Can any of the company-specific risk be diversified away by investing in both Alternative Asset 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 Alternative Asset and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alternative Asset Allocation and Large Cap Value, you can compare the effects of market volatilities on Alternative Asset 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 Alternative Asset with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alternative Asset and Large Cap.
Diversification Opportunities for Alternative Asset and Large Cap
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Alternative and Large is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Alternative Asset Allocation and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value and Alternative Asset 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 Alternative Asset Allocation 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 Value has no effect on the direction of Alternative Asset i.e., Alternative Asset and Large Cap go up and down completely randomly.
Pair Corralation between Alternative Asset and Large Cap
Assuming the 90 days horizon Alternative Asset is expected to generate 1.39 times less return on investment than Large Cap. But when comparing it to its historical volatility, Alternative Asset Allocation is 4.54 times less risky than Large Cap. It trades about 0.11 of its potential returns per unit of risk. Large Cap Value is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,450 in Large Cap Value on August 25, 2024 and sell it today you would earn a total of 393.00 from holding Large Cap Value or generate 16.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Alternative Asset Allocation vs. Large Cap Value
Performance |
| Timeline |
| Alternative Asset |
| Large Cap Value |
Alternative Asset and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alternative Asset and Large Cap
The main advantage of trading using opposite Alternative Asset and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alternative Asset 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.The idea behind Alternative Asset Allocation and Large Cap Value 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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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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