Correlation Between Large Cap and Oil Gas
Can any of the company-specific risk be diversified away by investing in both Large Cap and Oil Gas 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 Oil Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Growth Profund and Oil Gas Ultrasector, you can compare the effects of market volatilities on Large Cap and Oil Gas 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 Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Oil Gas.
Diversification Opportunities for Large Cap and Oil Gas
Poor diversification
The 3 months correlation between Large and Oil is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector 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 Growth Profund are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Large Cap i.e., Large Cap and Oil Gas go up and down completely randomly.
Pair Corralation between Large Cap and Oil Gas
Assuming the 90 days horizon Large Cap is expected to generate 2.16 times less return on investment than Oil Gas. But when comparing it to its historical volatility, Large Cap Growth Profund is 1.83 times less risky than Oil Gas. It trades about 0.25 of its potential returns per unit of risk. Oil Gas Ultrasector is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 4,264 in Oil Gas Ultrasector on September 1, 2024 and sell it today you would earn a total of 456.00 from holding Oil Gas Ultrasector or generate 10.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Growth Profund vs. Oil Gas Ultrasector
Performance |
| Timeline |
| Large Cap Growth |
| Oil Gas Ultrasector |
Large Cap and Oil Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Oil Gas
The main advantage of trading using opposite Large Cap and Oil Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Oil Gas 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 Oil Gas will offset losses from the drop in Oil Gas' long position.| Large Cap vs. Short Real Estate | Large Cap vs. Ultrashort Mid Cap Profund | Large Cap vs. Technology Ultrasector Profund | Large Cap vs. Technology Ultrasector Profund |
| Oil Gas vs. Precious Metals Ultrasector | Oil Gas vs. Real Estate Ultrasector | Oil Gas vs. Basic Materials Ultrasector | Oil Gas vs. Utilities Ultrasector Profund |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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