Correlation Between Largecap Growth and Largecap Value

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Can any of the company-specific risk be diversified away by investing in both Largecap Growth and Largecap Value 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 Largecap Growth and Largecap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Largecap Growth Fund and Largecap Value Fund, you can compare the effects of market volatilities on Largecap Growth and Largecap Value 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 Largecap Growth with a short position of Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap Growth and Largecap Value.

Diversification Opportunities for Largecap Growth and Largecap Value

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Largecap and Largecap is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Growth Fund and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Value and Largecap Growth 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 Largecap Growth Fund are associated (or correlated) with Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of Largecap Growth i.e., Largecap Growth and Largecap Value go up and down completely randomly.

Pair Corralation between Largecap Growth and Largecap Value

Assuming the 90 days horizon Largecap Growth Fund is expected to generate 1.17 times more return on investment than Largecap Value. However, Largecap Growth is 1.17 times more volatile than Largecap Value Fund. It trades about 0.31 of its potential returns per unit of risk. Largecap Value Fund is currently generating about 0.21 per unit of risk. If you would invest  1,553  in Largecap Growth Fund on April 30, 2025 and sell it today you would earn a total of  270.00  from holding Largecap Growth Fund or generate 17.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Largecap Growth Fund  vs.  Largecap Value Fund

 Performance 
       Timeline  
Largecap Growth 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Growth Fund are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Largecap Growth showed solid returns over the last few months and may actually be approaching a breakup point.
Largecap Value 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Value Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Largecap Value may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Largecap Growth and Largecap Value Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Largecap Growth and Largecap Value

The main advantage of trading using opposite Largecap Growth and Largecap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Largecap Growth position performs unexpectedly, Largecap Value 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 Largecap Value will offset losses from the drop in Largecap Value's long position.
The idea behind Largecap Growth Fund and Largecap Value Fund 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.

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