Correlation Between Blue Chip and Largecap Growth
Can any of the company-specific risk be diversified away by investing in both Blue Chip and Largecap Growth 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 Largecap Growth 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 Largecap Growth Fund, you can compare the effects of market volatilities on Blue Chip and Largecap Growth 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 Largecap Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Largecap Growth.
Diversification Opportunities for Blue Chip and Largecap Growth
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Blue and Largecap is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Fund and Largecap Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Growth 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 Largecap Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Growth has no effect on the direction of Blue Chip i.e., Blue Chip and Largecap Growth go up and down completely randomly.
Pair Corralation between Blue Chip and Largecap Growth
Assuming the 90 days horizon Blue Chip is expected to generate 1.09 times less return on investment than Largecap Growth. But when comparing it to its historical volatility, Blue Chip Fund is 1.16 times less risky than Largecap Growth. It trades about 0.12 of its potential returns per unit of risk. Largecap Growth Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,910 in Largecap Growth Fund on August 28, 2024 and sell it today you would earn a total of 293.00 from holding Largecap Growth Fund or generate 15.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Chip Fund vs. Largecap Growth Fund
Performance |
| Timeline |
| Blue Chip Fund |
| Largecap Growth |
Blue Chip and Largecap Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Chip and Largecap Growth
The main advantage of trading using opposite Blue Chip and Largecap Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip position performs unexpectedly, Largecap Growth 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 Largecap Growth will offset losses from the drop in Largecap Growth's 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 |
| Largecap Growth vs. Strategic Asset Management | Largecap Growth vs. Strategic Asset Management | Largecap Growth vs. Strategic Asset Management | Largecap Growth 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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