Correlation Between Large Cap and Harbor Capital

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

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

Diversification Opportunities for Large Cap and Harbor Capital

0.7

Correlation Coefficient

Large Cap  Harbor Capital

Poor diversification

The 3 months correlation between Large and Harbor is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Harbor Capital Appreciation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harbor Capital Appre and Large 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 Large Cap Fund are associated (or correlated) with Harbor Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harbor Capital Appre has no effect on the direction of Large Cap i.e., Large Cap and Harbor Capital go up and down completely randomly.

Pair Corralation between Large Cap and Harbor Capital

Assuming the 90 days horizon Large Cap is expected to generate 33.24 times less return on investment than Harbor Capital. But when comparing it to its historical volatility, Large Cap Fund is 1.37 times less risky than Harbor Capital. It trades about 0.01 of its potential returns per unit of risk. Harbor Capital Appreciation is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  11,839  in Harbor Capital Appreciation on September 19, 2024 and sell it today you would earn a total of  1,297  from holding Harbor Capital Appreciation or generate 10.96% return on investment over 90 days.

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

Large Cap Fund  vs.  Harbor Capital Appreciation

Large Cap Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Large Cap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Harbor Capital Appre

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with Large Cap and Harbor Capital

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

The idea behind Large Cap Fund and Harbor Capital Appreciation 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.