Correlation Between Broad Cap and Valic Company

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

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

Diversification Opportunities for Broad Cap and Valic Company

0.91

Correlation Coefficient

Broad Cap  Valic Company

Almost no diversification

The 3 months correlation between Broad and Valic is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Broad Cap Value and Valic Company I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valic Company I and Broad Cap 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 Broad Cap Value are associated (or correlated) with Valic Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valic Company I has no effect on the direction of Broad Cap i.e., Broad Cap and Valic Company go up and down completely randomly.

Pair Corralation between Broad Cap and Valic Company

Assuming the 90 days horizon Broad Cap is expected to generate 1.13 times less return on investment than Valic Company. But when comparing it to its historical volatility, Broad Cap Value is 1.59 times less risky than Valic Company. It trades about 0.21 of its potential returns per unit of risk. Valic Company I is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,925  in Valic Company I on August 16, 2024 and sell it today you would earn a total of  200.00  from holding Valic Company I or generate 10.39% return on investment over 90 days.

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

Broad Cap Value  vs.  Valic Company I

Broad Cap Value

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Broad Cap Value are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Broad Cap may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Valic Company I

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valic Company I are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Valic Company may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Broad Cap and Valic Company

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

The idea behind Broad Cap Value and Valic Company I 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.