Correlation Between Large Cap and New Economy
Can any of the company-specific risk be diversified away by investing in both Large Cap and New Economy 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 New Economy 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 New Economy Fund, you can compare the effects of market volatilities on Large Cap and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and New Economy.
Diversification Opportunities for Large Cap and New Economy
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Large and New is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Large Cap i.e., Large Cap and New Economy go up and down completely randomly.
Pair Corralation between Large Cap and New Economy
Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 1.09 times more return on investment than New Economy. However, Large Cap is 1.09 times more volatile than New Economy Fund. It trades about 0.09 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.09 per unit of risk. If you would invest 2,919 in Large Cap Growth Profund on September 2, 2024 and sell it today you would earn a total of 1,602 from holding Large Cap Growth Profund or generate 54.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Growth Profund vs. New Economy Fund
Performance |
| Timeline |
| Large Cap Growth |
| New Economy Fund |
Large Cap and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and New Economy
The main advantage of trading using opposite Large Cap and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's 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 |
| New Economy vs. Moderately Aggressive Balanced | New Economy vs. American Funds Retirement | New Economy vs. Jp Morgan Smartretirement | New Economy vs. Dimensional Retirement Income |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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