Correlation Between Large Capitalization and Energy Basic
Can any of the company-specific risk be diversified away by investing in both Large Capitalization and Energy Basic 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 Energy Basic 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 Energy Basic Materials, you can compare the effects of market volatilities on Large Capitalization and Energy Basic 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 Energy Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Capitalization and Energy Basic.
Diversification Opportunities for Large Capitalization and Energy Basic
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Large and Energy is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Large Capitalization Growth and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials 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 Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Large Capitalization i.e., Large Capitalization and Energy Basic go up and down completely randomly.
Pair Corralation between Large Capitalization and Energy Basic
Assuming the 90 days horizon Large Capitalization Growth is expected to generate 1.03 times more return on investment than Energy Basic. However, Large Capitalization is 1.03 times more volatile than Energy Basic Materials. It trades about 0.35 of its potential returns per unit of risk. Energy Basic Materials is currently generating about 0.13 per unit of risk. If you would invest 471.00 in Large Capitalization Growth on April 24, 2025 and sell it today you would earn a total of 103.00 from holding Large Capitalization Growth or generate 21.87% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 98.39% |
Values | Daily Returns |
Large Capitalization Growth vs. Energy Basic Materials
Performance |
Timeline |
Large Capitalization |
Energy Basic Materials |
Large Capitalization and Energy Basic Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Large Capitalization and Energy Basic
The main advantage of trading using opposite Large Capitalization and Energy Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Capitalization position performs unexpectedly, Energy Basic 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 Energy Basic will offset losses from the drop in Energy Basic's long position.Large Capitalization vs. Vanguard Financials Index | Large Capitalization vs. Financials Ultrasector Profund | Large Capitalization vs. John Hancock Financial | Large Capitalization vs. Angel Oak Financial |
Energy Basic vs. Salient Alternative Beta | Energy Basic vs. Aggressive Balanced Allocation | Energy Basic vs. Salient Alternative Beta | Energy Basic vs. Moderately Aggressive Balanced |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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