Correlation Between Large Cap and Financial Services
Can any of the company-specific risk be diversified away by investing in both Large Cap 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 Cap 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 Cap Value and Financial Services Portfolio, you can compare the effects of market volatilities on Large Cap 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 Cap with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Financial Services.
Diversification Opportunities for Large Cap 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 Cap Value 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 Cap 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 Cap Value 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 Cap i.e., Large Cap and Financial Services go up and down completely randomly.
Pair Corralation between Large Cap and Financial Services
Assuming the 90 days horizon Large Cap is expected to generate 4.09 times less return on investment than Financial Services. But when comparing it to its historical volatility, Large Cap Value is 1.62 times less risky than Financial Services. It trades about 0.12 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 1,192 in Financial Services Portfolio on September 1, 2024 and sell it today you would earn a total of 132.00 from holding Financial Services Portfolio or generate 11.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Large Cap Value vs. Financial Services Portfolio
Performance |
| Timeline |
| Large Cap Value |
| Financial Services |
Large Cap and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Large Cap and Financial Services
The main advantage of trading using opposite Large Cap and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap 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 Cap vs. Transamerica Financial Life | Large Cap vs. 1919 Financial Services | Large Cap vs. Gabelli Global Financial | Large Cap vs. Mesirow Financial Small |
| Financial Services vs. Us Government Securities | Financial Services vs. Virtus Seix Government | Financial Services vs. Dws Government Money | Financial Services vs. Aig Government Money |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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