Correlation Between Inflation Protected and Large Capital

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

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

Diversification Opportunities for Inflation Protected and Large Capital

-0.46

Correlation Coefficient

Inflation Protected  Large Capital

Very good diversification

The 3 months correlation between Inflation and LARGE is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Inflation Protected Fund and Large Capital Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capital Growth and Inflation Protected 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 Inflation Protected Fund are associated (or correlated) with Large Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capital Growth has no effect on the direction of Inflation Protected i.e., Inflation Protected and Large Capital go up and down completely randomly.

Pair Corralation between Inflation Protected and Large Capital

Assuming the 90 days horizon Inflation Protected Fund is expected to under-perform the Large Capital. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inflation Protected Fund is 2.5 times less risky than Large Capital. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Large Capital Growth is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,043  in Large Capital Growth on September 3, 2024 and sell it today you would earn a total of  134.00  from holding Large Capital Growth or generate 6.56% return on investment over 90 days.

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

Inflation Protected Fund  vs.  Large Capital Growth

Inflation Protected

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inflation Protected Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inflation Protected is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Capital Growth

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capital Growth are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Large Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Inflation Protected and Large Capital

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

The idea behind Inflation Protected Fund and Large Capital Growth 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.