Correlation Between Broad Cap and Blue Chip
Can any of the company-specific risk be diversified away by investing in both Broad Cap 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 Broad Cap and Blue Chip into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broad Cap Value and Blue Chip Growth, you can compare the effects of market volatilities on Broad Cap 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 Broad Cap with a short position of Blue Chip. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broad Cap and Blue Chip.
Diversification Opportunities for Broad Cap and Blue Chip
Almost no diversification
The 3 months correlation between Broad and Blue is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Broad Cap Value 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 Broad 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 Broad Cap Value 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 Broad Cap i.e., Broad Cap and Blue Chip go up and down completely randomly.
Pair Corralation between Broad Cap and Blue Chip
Assuming the 90 days horizon Broad Cap is expected to generate 2.04 times less return on investment than Blue Chip. But when comparing it to its historical volatility, Broad Cap Value is 1.31 times less risky than Blue Chip. It trades about 0.18 of its potential returns per unit of risk. Blue Chip Growth is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,711 in Blue Chip Growth on May 2, 2025 and sell it today you would earn a total of 283.00 from holding Blue Chip Growth or generate 16.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Broad Cap Value vs. Blue Chip Growth
Performance |
| Timeline |
| Broad Cap Value |
| Blue Chip Growth |
Broad Cap and Blue Chip Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Broad Cap and Blue Chip
The main advantage of trading using opposite Broad Cap and Blue Chip positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broad Cap 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.| Broad Cap vs. Mid Cap Index | Broad Cap vs. Valic Company I | Broad Cap vs. Mid Cap Strategic | Broad Cap vs. Valic Company I |
| Blue Chip vs. Victory Diversified Stock | Blue Chip vs. Voya Solution Conservative | Blue Chip vs. Mainstay Conservative Allocation | Blue Chip vs. American Funds Conservative |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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