Correlation Between Investment Quality and Large Capitalization
Can any of the company-specific risk be diversified away by investing in both Investment Quality 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 Investment Quality and Large Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Investment Quality Bond and Large Capitalization Growth, you can compare the effects of market volatilities on Investment Quality 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 Investment Quality with a short position of Large Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment Quality and Large Capitalization.
Diversification Opportunities for Investment Quality and Large Capitalization
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Investment and Large is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Investment Quality Bond and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Investment Quality 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 Investment Quality Bond 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 Investment Quality i.e., Investment Quality and Large Capitalization go up and down completely randomly.
Pair Corralation between Investment Quality and Large Capitalization
Assuming the 90 days horizon Investment Quality Bond is expected to under-perform the Large Capitalization. But the mutual fund apears to be less risky and, when comparing its historical volatility, Investment Quality Bond is 3.86 times less risky than Large Capitalization. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Large Capitalization Growth is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 2,747 in Large Capitalization Growth on August 29, 2024 and sell it today you would earn a total of 228.00 from holding Large Capitalization Growth or generate 8.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Investment Quality Bond vs. Large Capitalization Growth
Performance |
| Timeline |
| Investment Quality Bond |
| Large Capitalization |
Investment Quality and Large Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment Quality and Large Capitalization
The main advantage of trading using opposite Investment Quality and Large Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment Quality 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.| Investment Quality vs. Icon Financial Fund | Investment Quality vs. Financials Ultrasector Profund | Investment Quality vs. Vanguard Financials Index | Investment Quality vs. 1919 Financial Services |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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