Correlation Between Broad Cap and Stock Index
Can any of the company-specific risk be diversified away by investing in both Broad Cap and Stock Index 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 Broad Cap and Stock Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broad Cap Value and Stock Index Fund, you can compare the effects of market volatilities on Broad Cap and Stock Index 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 Broad Cap with a short position of Stock Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broad Cap and Stock Index.
Diversification Opportunities for Broad Cap and Stock Index
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Broad and Stock is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Broad Cap Value and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund and Broad 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 Broad Cap Value are associated (or correlated) with Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of Broad Cap i.e., Broad Cap and Stock Index go up and down completely randomly.
Pair Corralation between Broad Cap and Stock Index
Assuming the 90 days horizon Broad Cap Value is expected to generate 1.01 times more return on investment than Stock Index. However, Broad Cap is 1.01 times more volatile than Stock Index Fund. It trades about 0.26 of its potential returns per unit of risk. Stock Index Fund is currently generating about 0.15 per unit of risk. If you would invest 1,532 in Broad Cap Value on August 30, 2024 and sell it today you would earn a total of 77.00 from holding Broad Cap Value or generate 5.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Broad Cap Value vs. Stock Index Fund
Performance |
| Timeline |
| Broad Cap Value |
| Stock Index Fund |
Broad Cap and Stock Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broad Cap and Stock Index
The main advantage of trading using opposite Broad Cap and Stock Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broad Cap position performs unexpectedly, Stock Index 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 Stock Index will offset losses from the drop in Stock Index's long position.| Broad Cap vs. Mid Cap Index | Broad Cap vs. Mid Cap Strategic | Broad Cap vs. Valic Company I | Broad Cap vs. Stock Index Fund |
| Stock Index vs. Sterling Capital Short | Stock Index vs. Transamerica Funds | Stock Index vs. Barings Active Short | Stock Index vs. Touchstone Ohio Tax |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
Other Complementary Tools
| Earnings Calls Check upcoming earnings announcements updated hourly across public exchanges | |
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing |