Correlation Between Snap and Large Capitalization
Can any of the company-specific risk be diversified away by investing in both Snap and Large Capitalization 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 Snap and Large Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Snap Inc and Large Capitalization Growth, you can compare the effects of market volatilities on Snap and Large Capitalization 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 Snap with a short position of Large Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Snap and Large Capitalization.
Diversification Opportunities for Snap and Large Capitalization
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Snap and Large is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Snap Inc and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Snap 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 Snap Inc are associated (or correlated) with Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Snap i.e., Snap and Large Capitalization go up and down completely randomly.
Pair Corralation between Snap and Large Capitalization
Given the investment horizon of 90 days Snap Inc is expected to under-perform the Large Capitalization. In addition to that, Snap is 2.96 times more volatile than Large Capitalization Growth. It trades about -0.03 of its total potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.4 per unit of volatility. If you would invest 1,098 in Large Capitalization Growth on September 1, 2024 and sell it today you would earn a total of 102.00 from holding Large Capitalization Growth or generate 9.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Snap Inc vs. Large Capitalization Growth
Performance |
| Timeline |
| Snap Inc |
| Large Capitalization |
Snap and Large Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Snap and Large Capitalization
The main advantage of trading using opposite Snap and Large Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snap position performs unexpectedly, Large Capitalization 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 Capitalization will offset losses from the drop in Large Capitalization's long position.The idea behind Snap Inc and Large Capitalization Growth 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.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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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