Correlation Between Equity Income and Large Cap
Can any of the company-specific risk be diversified away by investing in both Equity Income and Large Cap 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 Equity Income and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Income Fund and Large Cap E, you can compare the effects of market volatilities on Equity Income and Large Cap 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 Equity Income with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Large Cap.
Diversification Opportunities for Equity Income and Large Cap
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Equity and Large is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Equity Income 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 Equity Income Fund are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Equity Income i.e., Equity Income and Large Cap go up and down completely randomly.
Pair Corralation between Equity Income and Large Cap
Assuming the 90 days horizon Equity Income is expected to generate 1.2 times less return on investment than Large Cap. But when comparing it to its historical volatility, Equity Income Fund is 1.09 times less risky than Large Cap. It trades about 0.07 of its potential returns per unit of risk. Large Cap E is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,973 in Large Cap E on August 26, 2024 and sell it today you would earn a total of 652.00 from holding Large Cap E or generate 33.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Income Fund vs. Large Cap E
Performance |
| Timeline |
| Equity Income |
| Large Cap E |
Equity Income and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and Large Cap
The main advantage of trading using opposite Equity Income and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income position performs unexpectedly, Large Cap 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 Large Cap will offset losses from the drop in Large Cap's long position.| Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management |
| Large Cap vs. Quantitative U S | Large Cap vs. Quantitative U S | Large Cap vs. Small Cap Equity | Large Cap vs. Large Cap Growth |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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