Correlation Between Large Capital and Blue Chip

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

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

Diversification Opportunities for Large Capital and Blue Chip

0.91

Correlation Coefficient

Large Capital  Blue Chip

Almost no diversification

The 3 months correlation between LARGE and Blue is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Large Capital Growth and Blue Chip Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Growth and Large Capital 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 Capital Growth are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Growth has no effect on the direction of Large Capital i.e., Large Capital and Blue Chip go up and down completely randomly.

Pair Corralation between Large Capital and Blue Chip

Assuming the 90 days horizon Large Capital is expected to generate 1.94 times less return on investment than Blue Chip. But when comparing it to its historical volatility, Large Capital Growth is 1.44 times less risky than Blue Chip. It trades about 0.16 of its potential returns per unit of risk. Blue Chip Growth is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,763  in Blue Chip Growth on September 4, 2024 and sell it today you would earn a total of  237.00  from holding Blue Chip Growth or generate 13.44% return on investment over 90 days.

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

Large Capital Growth  vs.  Blue Chip Growth

Large Capital Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capital Growth are ranked lower than 12 (%) 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.

Blue Chip Growth

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Chip Growth are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Blue Chip showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Large Capital and Blue Chip

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

The idea behind Large Capital Growth and Blue Chip 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 Stocks Directory module to find actively traded stocks across global markets.