Correlation Between Large Cap and Morningstar Aggressive

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

By analyzing existing cross correlation between Large Cap Growth and Morningstar Aggressive Growth, you can compare the effects of market volatilities on Large Cap and Morningstar Aggressive 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 Morningstar Aggressive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Morningstar Aggressive.

Diversification Opportunities for Large Cap and Morningstar Aggressive

0.76

Correlation Coefficient

Large Cap  Morningstar Aggressive

Poor diversification

The 3 months correlation between Large and Morningstar is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth and Morningstar Aggressive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar Aggressive 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 Growth are associated (or correlated) with Morningstar Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar Aggressive has no effect on the direction of Large Cap i.e., Large Cap and Morningstar Aggressive go up and down completely randomly.

Pair Corralation between Large Cap and Morningstar Aggressive

Assuming the 90 days horizon Large Cap Growth is expected to generate 1.35 times more return on investment than Morningstar Aggressive. However, Large Cap is 1.35 times more volatile than Morningstar Aggressive Growth. It trades about 0.1 of its potential returns per unit of risk. Morningstar Aggressive Growth is currently generating about 0.1 per unit of risk. If you would invest  3,085  in Large Cap Growth on September 13, 2024 and sell it today you would earn a total of  812.00  from holding Large Cap Growth or generate 26.32% return on investment over 90 days.

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

Large Cap Growth  vs.  Morningstar Aggressive Growth

Large Cap Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Morningstar Aggressive

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Aggressive Growth are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Morningstar Aggressive 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 Morningstar Aggressive

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

The idea behind Large Cap Growth and Morningstar Aggressive Growth 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.