Correlation Between Large Cap and Global Franchise

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

Diversification Opportunities for Large Cap and Global Franchise

-0.15

Correlation Coefficient

Large Cap  Global Franchise

Good diversification

The 3 months correlation between Large and Global is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Global Franchise Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Franchise Por 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 Global Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Franchise Por has no effect on the direction of Large Cap i.e., Large Cap and Global Franchise go up and down completely randomly.

Pair Corralation between Large Cap and Global Franchise

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.62 times more return on investment than Global Franchise. However, Large Cap Growth Profund is 1.61 times less risky than Global Franchise. It trades about 0.19 of its potential returns per unit of risk. Global Franchise Portfolio is currently generating about -0.12 per unit of risk. If you would invest  4,276  in Large Cap Growth Profund on September 19, 2024 and sell it today you would earn a total of  451.00  from holding Large Cap Growth Profund or generate 10.55% 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 Profund  vs.  Global Franchise Portfolio

Large Cap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 14 (%) 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.

Global Franchise Por

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Franchise Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Large Cap and Global Franchise

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

The idea behind Large Cap Growth Profund and Global Franchise Portfolio 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.