Correlation Between Large Capitalization and Financial Services
Can any of the company-specific risk be diversified away by investing in both Large Capitalization and Financial Services 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 Large Capitalization and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Capitalization Growth and Financial Services Portfolio, you can compare the effects of market volatilities on Large Capitalization and Financial Services 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 Large Capitalization with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Capitalization and Financial Services.
Diversification Opportunities for Large Capitalization and Financial Services
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Large and Financial is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Large Capitalization Growth and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Large Capitalization 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 Large Capitalization Growth are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Large Capitalization i.e., Large Capitalization and Financial Services go up and down completely randomly.
Pair Corralation between Large Capitalization and Financial Services
Assuming the 90 days horizon Large Capitalization is expected to generate 2.27 times less return on investment than Financial Services. In addition to that, Large Capitalization is 1.39 times more volatile than Financial Services Portfolio. It trades about 0.07 of its total potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.23 per unit of volatility. If you would invest 1,189 in Financial Services Portfolio on November 7, 2024 and sell it today you would earn a total of 53.00 from holding Financial Services Portfolio or generate 4.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Capitalization Growth vs. Financial Services Portfolio
Performance |
| Timeline |
| Large Capitalization |
| Financial Services |
Large Capitalization and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Capitalization and Financial Services
The main advantage of trading using opposite Large Capitalization and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Capitalization position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.| Large Capitalization vs. Lord Abbett Inflation | Large Capitalization vs. Cref Inflation Linked Bond | Large Capitalization vs. Ab Bond Inflation | Large Capitalization vs. Simt Multi Asset Inflation |
| Financial Services vs. Rreef Property Trust | Financial Services vs. Vanguard Reit Index | Financial Services vs. Fidelity Real Estate | Financial Services vs. Nexpoint Real Estate |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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