Correlation Between Large Cap and Jensen Portfolio

Can any of the company-specific risk be diversified away by investing in both Large Cap and Jensen Portfolio 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 Jensen Portfolio 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 The Jensen Portfolio, you can compare the effects of market volatilities on Large Cap and Jensen Portfolio 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 Jensen Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Jensen Portfolio.

Diversification Opportunities for Large Cap and Jensen Portfolio

0.84

Correlation Coefficient

Large Cap  Jensen Portfolio

Very poor diversification

The 3 months correlation between Large and Jensen is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and The Jensen Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jensen Portfolio 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 Jensen Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jensen Portfolio has no effect on the direction of Large Cap i.e., Large Cap and Jensen Portfolio go up and down completely randomly.

Pair Corralation between Large Cap and Jensen Portfolio

Assuming the 90 days horizon Large Cap Fund is expected to generate 1.09 times more return on investment than Jensen Portfolio. However, Large Cap is 1.09 times more volatile than The Jensen Portfolio. It trades about 0.11 of its potential returns per unit of risk. The Jensen Portfolio is currently generating about 0.05 per unit of risk. If you would invest  1,668  in Large Cap Fund on September 13, 2024 and sell it today you would earn a total of  78.00  from holding Large Cap Fund or generate 4.68% return on investment over 90 days.

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

Large Cap Fund  vs.  The Jensen Portfolio

Large Cap Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. 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.

Jensen Portfolio

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Jensen Portfolio are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Jensen Portfolio 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 Cap and Jensen Portfolio

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

The idea behind Large Cap Fund and The Jensen Portfolio 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.