Correlation Between Inflation Protection and Largecap
Can any of the company-specific risk be diversified away by investing in both Inflation Protection and Largecap 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 Inflation Protection and Largecap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inflation Protection Fund and Largecap Sp 500, you can compare the effects of market volatilities on Inflation Protection and Largecap 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 Inflation Protection with a short position of Largecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inflation Protection and Largecap.
Diversification Opportunities for Inflation Protection and Largecap
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Inflation and Largecap is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protection Fund and Largecap Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Sp 500 and Inflation Protection 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 Inflation Protection Fund are associated (or correlated) with Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Sp 500 has no effect on the direction of Inflation Protection i.e., Inflation Protection and Largecap go up and down completely randomly.
Pair Corralation between Inflation Protection and Largecap
Assuming the 90 days horizon Inflation Protection is expected to generate 6.68 times less return on investment than Largecap. But when comparing it to its historical volatility, Inflation Protection Fund is 3.18 times less risky than Largecap. It trades about 0.06 of its potential returns per unit of risk. Largecap Sp 500 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,571 in Largecap Sp 500 on August 28, 2024 and sell it today you would earn a total of 387.00 from holding Largecap Sp 500 or generate 15.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Inflation Protection Fund vs. Largecap Sp 500
Performance |
| Timeline |
| Inflation Protection |
| Largecap Sp 500 |
Inflation Protection and Largecap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inflation Protection and Largecap
The main advantage of trading using opposite Inflation Protection and Largecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inflation Protection position performs unexpectedly, Largecap 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 will offset losses from the drop in Largecap's long position.| Inflation Protection vs. T Rowe Price | Inflation Protection vs. Nuveen All American Municipal | Inflation Protection vs. Nuveen Minnesota Municipal | Inflation Protection vs. T Rowe Price |
| Largecap vs. Strategic Asset Management | Largecap vs. Strategic Asset Management | Largecap vs. Strategic Asset Management | Largecap 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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