Correlation Between Large Capitalization and Moderately Aggressive

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

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

Diversification Opportunities for Large Capitalization and Moderately Aggressive

0.99

Correlation Coefficient

Large Capitalization  Moderately Aggressive

No risk reduction

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

Pair Corralation between Large Capitalization and Moderately Aggressive

Assuming the 90 days horizon Large Capitalization Growth is expected to generate 1.89 times more return on investment than Moderately Aggressive. However, Large Capitalization is 1.89 times more volatile than Moderately Aggressive Balanced. It trades about 0.43 of its potential returns per unit of risk. Moderately Aggressive Balanced is currently generating about 0.38 per unit of risk. If you would invest  2,438  in Large Capitalization Growth on April 20, 2025 and sell it today you would earn a total of  792.00  from holding Large Capitalization Growth or generate 32.49% return on investment over 90 days.

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

Large Capitalization Growth  vs.  Moderately Aggressive Balanced

Large Capitalization

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capitalization Growth are ranked lower than 33 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Large Capitalization showed solid returns over the last few months and may actually be approaching a breakup point.

Moderately Aggressive

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Moderately Aggressive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Large Capitalization and Moderately Aggressive

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

The idea behind Large Capitalization Growth and Moderately Aggressive Balanced 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.