Correlation Between Blue Chip and Capital Securities
Can any of the company-specific risk be diversified away by investing in both Blue Chip and Capital Securities 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 Blue Chip and Capital Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Fund and Capital Securities Fund, you can compare the effects of market volatilities on Blue Chip and Capital Securities 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 Blue Chip with a short position of Capital Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Capital Securities.
Diversification Opportunities for Blue Chip and Capital Securities
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Blue and Capital is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Capital Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities and Blue Chip 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 Blue Chip Fund are associated (or correlated) with Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities has no effect on the direction of Blue Chip i.e., Blue Chip and Capital Securities go up and down completely randomly.
Pair Corralation between Blue Chip and Capital Securities
Assuming the 90 days horizon Blue Chip Fund is expected to generate 2.73 times more return on investment than Capital Securities. However, Blue Chip is 2.73 times more volatile than Capital Securities Fund. It trades about 0.11 of its potential returns per unit of risk. Capital Securities Fund is currently generating about 0.1 per unit of risk. If you would invest 2,914 in Blue Chip Fund on September 2, 2024 and sell it today you would earn a total of 1,932 from holding Blue Chip Fund or generate 66.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Chip Fund vs. Capital Securities Fund
Performance |
| Timeline |
| Blue Chip Fund |
| Capital Securities |
Blue Chip and Capital Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Capital Securities
The main advantage of trading using opposite Blue Chip and Capital Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip position performs unexpectedly, Capital Securities 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 Capital Securities will offset losses from the drop in Capital Securities' long position.| Blue Chip vs. Strategic Asset Management | Blue Chip vs. Strategic Asset Management | Blue Chip vs. Strategic Asset Management | Blue Chip vs. Strategic Asset Management |
| Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management |
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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