Correlation Between Large Cap and Short-intermediate

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

Diversification Opportunities for Large Cap and Short-intermediate

-0.24

Correlation Coefficient

Large Cap  Short-intermediate

Very good diversification

The 3 months correlation between Large and Short-intermediate is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth and Short Intermediate Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Intermediate Bond 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 Short-intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Intermediate Bond has no effect on the direction of Large Cap i.e., Large Cap and Short-intermediate go up and down completely randomly.

Pair Corralation between Large Cap and Short-intermediate

Assuming the 90 days horizon Large Cap Growth is expected to generate 7.54 times more return on investment than Short-intermediate. However, Large Cap is 7.54 times more volatile than Short Intermediate Bond Fund. It trades about 0.21 of its potential returns per unit of risk. Short Intermediate Bond Fund is currently generating about 0.02 per unit of risk. If you would invest  3,405  in Large Cap Growth on September 4, 2024 and sell it today you would earn a total of  412.00  from holding Large Cap Growth or generate 12.1% 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.  Short Intermediate Bond Fund

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.

Short Intermediate Bond

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Short Intermediate Bond Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short-intermediate 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 Short-intermediate

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

The idea behind Large Cap Growth and Short Intermediate Bond Fund 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.