Correlation Between Moderate Balanced and Large Cap
Can any of the company-specific risk be diversified away by investing in both Moderate Balanced and Large Cap 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 Moderate Balanced and Large Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moderate Balanced Allocation and Large Cap Value, you can compare the effects of market volatilities on Moderate Balanced and Large Cap 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 Moderate Balanced with a short position of Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderate Balanced and Large Cap.
Diversification Opportunities for Moderate Balanced and Large Cap
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Moderate and Large is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation and Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Value and Moderate Balanced 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 Moderate Balanced Allocation are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Value has no effect on the direction of Moderate Balanced i.e., Moderate Balanced and Large Cap go up and down completely randomly.
Pair Corralation between Moderate Balanced and Large Cap
Assuming the 90 days horizon Moderate Balanced is expected to generate 1.47 times less return on investment than Large Cap. But when comparing it to its historical volatility, Moderate Balanced Allocation is 1.54 times less risky than Large Cap. It trades about 0.31 of its potential returns per unit of risk. Large Cap Value is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 1,563 in Large Cap Value on April 12, 2025 and sell it today you would earn a total of 272.00 from holding Large Cap Value or generate 17.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Moderate Balanced Allocation vs. Large Cap Value
Performance |
| Timeline |
| Moderate Balanced |
| Large Cap Value |
Moderate Balanced and Large Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moderate Balanced and Large Cap
The main advantage of trading using opposite Moderate Balanced and Large Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderate Balanced position performs unexpectedly, Large Cap 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 Cap will offset losses from the drop in Large Cap's long position.| Moderate Balanced vs. Municipal Bond Portfolio | Moderate Balanced vs. Alpine Ultra Short | Moderate Balanced vs. Ishares Municipal Bond | Moderate Balanced vs. Virtus Seix Government |
| Large Cap vs. Goldman Sachs Financial | Large Cap vs. Gabelli Global Financial | Large Cap vs. 1919 Financial Services | Large Cap vs. Rmb Mendon Financial |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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