Correlation Between Core Plus and Largecap
Can any of the company-specific risk be diversified away by investing in both Core Plus 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 Core Plus and Largecap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Core Plus Bond and Largecap Sp 500, you can compare the effects of market volatilities on Core Plus 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 Core Plus with a short position of Largecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Plus and Largecap.
Diversification Opportunities for Core Plus and Largecap
Pay attention - limited upside
The 3 months correlation between Core and Largecap is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus Bond 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 Core Plus 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 Core Plus Bond 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 Core Plus i.e., Core Plus and Largecap go up and down completely randomly.
Pair Corralation between Core Plus and Largecap
Assuming the 90 days horizon Core Plus is expected to generate 12.6 times less return on investment than Largecap. But when comparing it to its historical volatility, Core Plus Bond is 2.23 times less risky than Largecap. It trades about 0.03 of its potential returns per unit of risk. Largecap Sp 500 is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,869 in Largecap Sp 500 on August 28, 2024 and sell it today you would earn a total of 84.00 from holding Largecap Sp 500 or generate 2.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Core Plus Bond vs. Largecap Sp 500
Performance |
| Timeline |
| Core Plus Bond |
| Largecap Sp 500 |
Core Plus and Largecap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Core Plus and Largecap
The main advantage of trading using opposite Core Plus and Largecap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core Plus 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.| Core Plus vs. Strategic Asset Management | Core Plus vs. Strategic Asset Management | Core Plus vs. Strategic Asset Management | Core Plus vs. Strategic Asset Management |
| 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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