Correlation Between Largecap Growth and Commerce Midcap

Can any of the company-specific risk be diversified away by investing in both Largecap Growth and Commerce Midcap 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 Largecap Growth and Commerce Midcap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Largecap Growth Fund and Commerce Midcap Value, you can compare the effects of market volatilities on Largecap Growth and Commerce Midcap 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 Largecap Growth with a short position of Commerce Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap Growth and Commerce Midcap.

Diversification Opportunities for Largecap Growth and Commerce Midcap

0.93

Correlation Coefficient

Largecap Growth  Commerce Midcap

Almost no diversification

The 3 months correlation between LARGECAP and Commerce is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Growth Fund and Commerce Midcap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Midcap Value and Largecap Growth 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 Largecap Growth Fund are associated (or correlated) with Commerce Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Midcap Value has no effect on the direction of Largecap Growth i.e., Largecap Growth and Commerce Midcap go up and down completely randomly.

Pair Corralation between Largecap Growth and Commerce Midcap

Assuming the 90 days horizon Largecap Growth Fund is expected to generate 1.14 times more return on investment than Commerce Midcap. However, Largecap Growth is 1.14 times more volatile than Commerce Midcap Value. It trades about 0.18 of its potential returns per unit of risk. Commerce Midcap Value is currently generating about 0.17 per unit of risk. If you would invest  1,387  in Largecap Growth Fund on September 2, 2024 and sell it today you would earn a total of  145.00  from holding Largecap Growth Fund or generate 10.45% return on investment over 90 days.

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

Largecap Growth Fund  vs.  Commerce Midcap Value

Largecap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Largecap Growth Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking indicators, Largecap Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Commerce Midcap Value

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Midcap Value are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Commerce Midcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Largecap Growth and Commerce Midcap

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

The idea behind Largecap Growth Fund and Commerce Midcap Value 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 Transaction History module to view history of all your transactions and understand their impact on performance.