Correlation Between Large Cap and Intermediate Term

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

Diversification Opportunities for Large Cap and Intermediate Term

-0.59

Correlation Coefficient

Large Cap  Intermediate Term

Excellent diversification

The 3 months correlation between Large and Intermediate is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term 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 Profund are associated (or correlated) with Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Large Cap i.e., Large Cap and Intermediate Term go up and down completely randomly.

Pair Corralation between Large Cap and Intermediate Term

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 3.11 times more return on investment than Intermediate Term. However, Large Cap is 3.11 times more volatile than Intermediate Term Bond Fund. It trades about 0.19 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about -0.14 per unit of risk. If you would invest  4,184  in Large Cap Growth Profund on September 15, 2024 and sell it today you would earn a total of  485.00  from holding Large Cap Growth Profund or generate 11.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Large Cap Growth Profund  vs.  Intermediate Term Bond Fund

Large Cap Growth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 15 (%) 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.

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Term Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Intermediate Term 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 Intermediate Term

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

The idea behind Large Cap Growth Profund and Intermediate Term 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.