Correlation Between Largecap and Largecap Value

Can any of the company-specific risk be diversified away by investing in both Largecap 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 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 Sp 500 and Largecap Value Fund, you can compare the effects of market volatilities on Largecap 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 with a short position of Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap and Largecap Value.

Diversification Opportunities for Largecap and Largecap Value

0.97

Correlation Coefficient

Largecap  Largecap Value

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 Sp 500 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 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 Sp 500 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 i.e., Largecap and Largecap Value go up and down completely randomly.

Pair Corralation between Largecap and Largecap Value

Assuming the 90 days horizon Largecap Sp 500 is expected to generate 1.02 times more return on investment than Largecap Value. However, Largecap is 1.02 times more volatile than Largecap Value Fund. It trades about 0.26 of its potential returns per unit of risk. Largecap Value Fund is currently generating about 0.17 per unit of risk. If you would invest  2,748  in Largecap Sp 500 on May 2, 2025 and sell it today you would earn a total of  335.00  from holding Largecap Sp 500 or generate 12.19% return on investment over 90 days.

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

Largecap Sp 500  vs.  Largecap Value Fund

Largecap Sp 500

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Sp 500 are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Largecap may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Largecap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Value Fund are ranked lower than 13 (%) 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.

Pair Trading with Largecap and Largecap Value

The main advantage of trading using opposite Largecap and Largecap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Largecap 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 Sp 500 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.