Correlation Between Large Cap and Quantitative

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

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

Diversification Opportunities for Large Cap and Quantitative

0.81

Correlation Coefficient

Large Cap  Quantitative

Very poor diversification

The 3 months correlation between Large and Quantitative is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Core and Quantitative U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative U S 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 Core are associated (or correlated) with Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative U S has no effect on the direction of Large Cap i.e., Large Cap and Quantitative go up and down completely randomly.

Pair Corralation between Large Cap and Quantitative

Assuming the 90 days horizon Large Cap is expected to generate 1.19 times less return on investment than Quantitative. In addition to that, Large Cap is 1.01 times more volatile than Quantitative U S. It trades about 0.13 of its total potential returns per unit of risk. Quantitative U S is currently generating about 0.15 per unit of volatility. If you would invest  1,232  in Quantitative U S on May 22, 2025 and sell it today you would earn a total of  87.00  from holding Quantitative U S or generate 7.06% return on investment over 90 days.

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

Large Cap Core  vs.  Quantitative U S

Large Cap Core

Risk-Adjusted Performance

Fair

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.

Quantitative U S

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Quantitative U S are ranked lower than 12 (%) 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 September 2025.

Pair Trading with Large Cap and Quantitative

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

The idea behind Large Cap Core and Quantitative U S 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.