Correlation Between Stock Index and Broad Cap
Can any of the company-specific risk be diversified away by investing in both Stock Index and Broad Cap 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 Stock Index and Broad Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stock Index Fund and Broad Cap Value, you can compare the effects of market volatilities on Stock Index and Broad Cap 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 Stock Index with a short position of Broad Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Index and Broad Cap.
Diversification Opportunities for Stock Index and Broad Cap
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Stock and Broad is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index Fund and Broad Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broad Cap Value and Stock Index 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 Stock Index Fund are associated (or correlated) with Broad Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broad Cap Value has no effect on the direction of Stock Index i.e., Stock Index and Broad Cap go up and down completely randomly.
Pair Corralation between Stock Index and Broad Cap
Assuming the 90 days horizon Stock Index is expected to generate 1.6 times less return on investment than Broad Cap. In addition to that, Stock Index is 1.42 times more volatile than Broad Cap Value. It trades about 0.13 of its total potential returns per unit of risk. Broad Cap Value is currently generating about 0.3 per unit of volatility. If you would invest 1,495 in Broad Cap Value on October 20, 2024 and sell it today you would earn a total of 56.00 from holding Broad Cap Value or generate 3.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stock Index Fund vs. Broad Cap Value
Performance |
| Timeline |
| Stock Index Fund |
| Broad Cap Value |
Stock Index and Broad Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stock Index and Broad Cap
The main advantage of trading using opposite Stock Index and Broad Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stock Index position performs unexpectedly, Broad Cap 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 Broad Cap will offset losses from the drop in Broad Cap's long position.| Stock Index vs. Mid Cap Index | Stock Index vs. Mid Cap Strategic | Stock Index vs. Valic Company I | Stock Index vs. Valic Company I |
| Broad Cap vs. Siit Emerging Markets | Broad Cap vs. Investec Emerging Markets | Broad Cap vs. Ab All Market | Broad Cap vs. Sp Midcap Index |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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