Correlation Between Large Cap and Equity Series

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

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

Diversification Opportunities for Large Cap and Equity Series

0.84

Correlation Coefficient

Large Cap  Equity Series

Very poor diversification

The 3 months correlation between Large and Equity is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Equity Series Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Series Class 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 Fund are associated (or correlated) with Equity Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Series Class has no effect on the direction of Large Cap i.e., Large Cap and Equity Series go up and down completely randomly.

Pair Corralation between Large Cap and Equity Series

Assuming the 90 days horizon Large Cap is expected to generate 2.45 times less return on investment than Equity Series. In addition to that, Large Cap is 1.14 times more volatile than Equity Series Class. It trades about 0.05 of its total potential returns per unit of risk. Equity Series Class is currently generating about 0.15 per unit of volatility. If you would invest  1,504  in Equity Series Class on August 15, 2024 and sell it today you would earn a total of  193.00  from holding Equity Series Class or generate 12.83% return on investment over 90 days.

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

Large Cap Fund  vs.  Equity Series Class

Large Cap Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Series Class

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Series Class are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Equity Series may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Large Cap and Equity Series

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

The idea behind Large Cap Fund and Equity Series Class 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.