Correlation Between Large Capital and Broad Cap

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

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

Diversification Opportunities for Large Capital and Broad Cap

0.99

Correlation Coefficient

Large Capital  Broad Cap

No risk reduction

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

Pair Corralation between Large Capital and Broad Cap

Assuming the 90 days horizon Large Capital Growth is expected to generate 0.93 times more return on investment than Broad Cap. However, Large Capital Growth is 1.07 times less risky than Broad Cap. It trades about -0.04 of its potential returns per unit of risk. Broad Cap Value is currently generating about -0.14 per unit of risk. If you would invest  1,744  in Large Capital Growth on May 4, 2025 and sell it today you would lose (9.00) from holding Large Capital Growth or give up 0.52% of portfolio value over 90 days.

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

Large Capital Growth  vs.  Broad Cap Value

Large Capital Growth

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capital Growth are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Large Capital may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Broad Cap Value

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Broad Cap Value are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Broad Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Capital and Broad Cap

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

The idea behind Large Capital Growth and Broad 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.