Correlation Between Large Cap and Global Core

Can any of the company-specific risk be diversified away by investing in both Large Cap and Global Core 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 Global Core into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Large Cap Equity and Global E Portfolio, you can compare the effects of market volatilities on Large Cap and Global Core 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 Global Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Global Core.

Diversification Opportunities for Large Cap and Global Core

0.79

Correlation Coefficient

Large Cap  Global Core

Poor diversification

The 3 months correlation between Large and Global is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Equity and Global E Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E Portfolio 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 Equity are associated (or correlated) with Global Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Portfolio has no effect on the direction of Large Cap i.e., Large Cap and Global Core go up and down completely randomly.

Pair Corralation between Large Cap and Global Core

Assuming the 90 days horizon Large Cap Equity is expected to under-perform the Global Core. But the mutual fund apears to be less risky and, when comparing its historical volatility, Large Cap Equity is 1.17 times less risky than Global Core. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Global E Portfolio is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,910  in Global E Portfolio on February 6, 2024 and sell it today you would lose (32.00) from holding Global E Portfolio or give up 1.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Large Cap Equity  vs.  Global E Portfolio

Large Cap Equity

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Equity are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global E Portfolio

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Portfolio are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Global Core

The main advantage of trading using opposite Large Cap and Global Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Global Core 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 Global Core will offset losses from the drop in Global Core's long position.

The idea behind Large Cap Equity and Global E Portfolio 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.