Correlation Between Moderately Servative and Large Cap

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

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

Diversification Opportunities for Moderately Servative and Large Cap

0.98

Correlation Coefficient

Moderately Servative  Large Cap

Almost no diversification

The 3 months correlation between Moderately and Large is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Servative Balanced and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value and Moderately Servative 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 Moderately Servative Balanced 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 Value has no effect on the direction of Moderately Servative i.e., Moderately Servative and Large Cap go up and down completely randomly.

Pair Corralation between Moderately Servative and Large Cap

Assuming the 90 days horizon Moderately Servative is expected to generate 1.17 times less return on investment than Large Cap. But when comparing it to its historical volatility, Moderately Servative Balanced is 1.59 times less risky than Large Cap. It trades about 0.27 of its potential returns per unit of risk. Large Cap Value is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,419  in Large Cap Value on May 6, 2025 and sell it today you would earn a total of  205.00  from holding Large Cap Value or generate 8.47% return on investment over 90 days.

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

Moderately Servative Balanced  vs.  Large Cap Value

Moderately Servative

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Moderately Servative may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Large Cap Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Value are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Moderately Servative and Large Cap

The main advantage of trading using opposite Moderately Servative and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderately Servative 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 Moderately Servative Balanced and Large Cap Value 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.