Correlation Between Largecap and Applied Finance

Can any of the company-specific risk be diversified away by investing in both Largecap and Applied Finance 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 Applied Finance 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 Applied Finance Select, you can compare the effects of market volatilities on Largecap and Applied Finance 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 Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap and Applied Finance.

Diversification Opportunities for Largecap and Applied Finance

0.99

Correlation Coefficient

Largecap  Applied Finance

No risk reduction

The 3 months correlation between Largecap and Applied is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Sp 500 and Applied Finance Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Select 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 Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Select has no effect on the direction of Largecap i.e., Largecap and Applied Finance go up and down completely randomly.

Pair Corralation between Largecap and Applied Finance

Assuming the 90 days horizon Largecap Sp 500 is expected to generate 0.83 times more return on investment than Applied Finance. However, Largecap Sp 500 is 1.2 times less risky than Applied Finance. It trades about 0.31 of its potential returns per unit of risk. Applied Finance Select is currently generating about 0.21 per unit of risk. If you would invest  2,689  in Largecap Sp 500 on April 30, 2025 and sell it today you would earn a total of  403.00  from holding Largecap Sp 500 or generate 14.99% 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.  Applied Finance Select

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 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Largecap showed solid returns over the last few months and may actually be approaching a breakup point.

Applied Finance Select

Risk-Adjusted Performance

Solid

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

Pair Trading with Largecap and Applied Finance

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

The idea behind Largecap Sp 500 and Applied Finance Select 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.