Correlation Between Jensen Portfolio and Large Cap

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

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

Diversification Opportunities for Jensen Portfolio and Large Cap

0.84

Correlation Coefficient

Jensen Portfolio  Large Cap

Very poor diversification

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

Pair Corralation between Jensen Portfolio and Large Cap

Assuming the 90 days horizon Jensen Portfolio is expected to generate 16.3 times less return on investment than Large Cap. But when comparing it to its historical volatility, The Jensen Portfolio is 1.13 times less risky than Large Cap. It trades about 0.01 of its potential returns per unit of risk. Large Cap Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,728  in Large Cap Fund on September 13, 2024 and sell it today you would earn a total of  18.00  from holding Large Cap Fund or generate 1.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

The Jensen Portfolio  vs.  Large Cap Fund

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.

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.

Pair Trading with Jensen Portfolio and Large Cap

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

The idea behind The Jensen Portfolio and Large Cap 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.