Correlation Between Moderate Balanced and Large Capitalization

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

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

Diversification Opportunities for Moderate Balanced and Large Capitalization

0.99

Correlation Coefficient

Moderate Balanced  Large Capitalization

No risk reduction

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

Pair Corralation between Moderate Balanced and Large Capitalization

Assuming the 90 days horizon Moderate Balanced is expected to generate 2.14 times less return on investment than Large Capitalization. But when comparing it to its historical volatility, Moderate Balanced Allocation is 1.94 times less risky than Large Capitalization. It trades about 0.3 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  478.00  in Large Capitalization Growth on April 28, 2025 and sell it today you would earn a total of  99.00  from holding Large Capitalization Growth or generate 20.71% return on investment over 90 days.

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

Moderate Balanced Allocation  vs.  Large Capitalization Growth

Moderate Balanced

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Moderate Balanced may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Large Capitalization

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capitalization Growth are ranked lower than 25 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Large Capitalization showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Moderate Balanced and Large Capitalization

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

The idea behind Moderate Balanced Allocation and Large Capitalization Growth 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.