Correlation Between Moderately Aggressive and Large Cap
Can any of the company-specific risk be diversified away by investing in both Moderately Aggressive 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 Moderately Aggressive and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moderately Aggressive Balanced and Large Cap E, you can compare the effects of market volatilities on Moderately Aggressive 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 Moderately Aggressive with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Aggressive and Large Cap.
Diversification Opportunities for Moderately Aggressive and Large Cap
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Moderately and Large is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced 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 Moderately Aggressive 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 Moderately Aggressive Balanced 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 Moderately Aggressive i.e., Moderately Aggressive and Large Cap go up and down completely randomly.
Pair Corralation between Moderately Aggressive and Large Cap
Assuming the 90 days horizon Moderately Aggressive Balanced is expected to generate 0.16 times more return on investment than Large Cap. However, Moderately Aggressive Balanced is 6.36 times less risky than Large Cap. It trades about -0.15 of its potential returns per unit of risk. Large Cap E is currently generating about -0.26 per unit of risk. If you would invest 1,206 in Moderately Aggressive Balanced on October 14, 2024 and sell it today you would lose (25.00) from holding Moderately Aggressive Balanced or give up 2.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Moderately Aggressive Balanced vs. Large Cap E
Performance |
| Timeline |
| Moderately Aggressive |
| Large Cap E |
Moderately Aggressive and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moderately Aggressive and Large Cap
The main advantage of trading using opposite Moderately Aggressive and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderately Aggressive 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.The idea behind Moderately Aggressive Balanced and Large Cap E pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Large Cap vs. Moderately Aggressive Balanced | Large Cap vs. Qs Moderate Growth | Large Cap vs. College Retirement Equities | Large Cap vs. Voya Target Retirement |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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