Correlation Between Large Cap and Harding Loevner

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

Diversification Opportunities for Large Cap and Harding Loevner

-0.35

Correlation Coefficient

Large Cap  Harding Loevner

Very good diversification

The 3 months correlation between Large and Harding is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth and Harding Loevner International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harding Loevner Inte 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 Harding Loevner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harding Loevner Inte has no effect on the direction of Large Cap i.e., Large Cap and Harding Loevner go up and down completely randomly.

Pair Corralation between Large Cap and Harding Loevner

Assuming the 90 days horizon Large Cap Growth is expected to generate 1.13 times more return on investment than Harding Loevner. However, Large Cap is 1.13 times more volatile than Harding Loevner International. It trades about 0.2 of its potential returns per unit of risk. Harding Loevner International is currently generating about 0.0 per unit of risk. If you would invest  3,443  in Large Cap Growth on September 12, 2024 and sell it today you would earn a total of  409.00  from holding Large Cap Growth or generate 11.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Large Cap Growth  vs.  Harding Loevner International

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.

Harding Loevner Inte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harding Loevner International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Harding Loevner 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 Harding Loevner

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

The idea behind Large Cap Growth and Harding Loevner International 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.