Correlation Between Large Cap and Lsv Small

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

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

Diversification Opportunities for Large Cap and Lsv Small

0.81

Correlation Coefficient

Large Cap  Lsv Small

Very poor diversification

The 3 months correlation between Large and Lsv is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Lsv Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lsv Small Cap 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 Profund are associated (or correlated) with Lsv Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lsv Small Cap has no effect on the direction of Large Cap i.e., Large Cap and Lsv Small go up and down completely randomly.

Pair Corralation between Large Cap and Lsv Small

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.84 times more return on investment than Lsv Small. However, Large Cap Growth Profund is 1.19 times less risky than Lsv Small. It trades about 0.12 of its potential returns per unit of risk. Lsv Small Cap is currently generating about 0.07 per unit of risk. If you would invest  3,023  in Large Cap Growth Profund on September 14, 2024 and sell it today you would earn a total of  1,677  from holding Large Cap Growth Profund or generate 55.47% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Lsv Small Cap

Large Cap Growth

Risk-Adjusted Performance

16 of 100

Good

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

Lsv Small Cap

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lsv Small Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Lsv Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Large Cap and Lsv Small

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

The idea behind Large Cap Growth Profund and Lsv Small Cap 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.