Correlation Between Fulcrum Diversified and Large Cap

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

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

Diversification Opportunities for Fulcrum Diversified and Large Cap

0.67

Correlation Coefficient

Fulcrum Diversified  Large Cap

Poor diversification

The 3 months correlation between Fulcrum and Large is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Large Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Equity and Fulcrum Diversified 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 Fulcrum Diversified Absolute are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Equity has no effect on the direction of Fulcrum Diversified i.e., Fulcrum Diversified and Large Cap go up and down completely randomly.

Pair Corralation between Fulcrum Diversified and Large Cap

Assuming the 90 days horizon Fulcrum Diversified Absolute is expected to under-perform the Large Cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fulcrum Diversified Absolute is 1.82 times less risky than Large Cap. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Large Cap Equity is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,695  in Large Cap Equity on September 19, 2024 and sell it today you would lose (18.00) from holding Large Cap Equity or give up 0.67% of portfolio value over 90 days.

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

Fulcrum Diversified Absolute  vs.  Large Cap Equity

Fulcrum Diversified

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fulcrum Diversified Absolute are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Fulcrum Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Cap Equity

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Equity are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Large 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 Fulcrum Diversified and Large Cap

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

The idea behind Fulcrum Diversified Absolute and Large Cap Equity 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 Global Correlations module to find global opportunities by holding instruments from different markets.