Correlation Between Quantitative and Large Cap

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

By analyzing existing cross correlation between Quantitative U S and Large Cap Core, you can compare the effects of market volatilities on Quantitative and Large 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 Quantitative with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quantitative and Large Cap.

Diversification Opportunities for Quantitative and Large Cap

0.95

Correlation Coefficient

Quantitative  Large Cap

Almost no diversification

The 3 months correlation between Quantitative and Large is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Quantitative U S and Large Cap Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Core and Quantitative 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 Quantitative U S are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Core has no effect on the direction of Quantitative i.e., Quantitative and Large Cap go up and down completely randomly.

Pair Corralation between Quantitative and Large Cap

Assuming the 90 days horizon Quantitative U S is expected to generate 0.97 times more return on investment than Large Cap. However, Quantitative U S is 1.03 times less risky than Large Cap. It trades about 0.13 of its potential returns per unit of risk. Large Cap Core is currently generating about 0.12 per unit of risk. If you would invest  1,219  in Quantitative U S on May 2, 2025 and sell it today you would earn a total of  76.00  from holding Quantitative U S or generate 6.23% return on investment over 90 days.

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

Quantitative U S  vs.  Large Cap Core

Quantitative U S

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Quantitative U S are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Quantitative may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Large Cap Core

Risk-Adjusted Performance

OK

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

Pair Trading with Quantitative and Large Cap

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

The idea behind Quantitative U S and Large Cap Core 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.