Correlation Between Large Cap and Vela Large

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

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

Diversification Opportunities for Large Cap and Vela Large

0.85

Correlation Coefficient

Large Cap  Vela Large

Very poor diversification

The 3 months correlation between Large and Vela is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Vela Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vela Large Cap and Large 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 Large Cap Growth Profund are associated (or correlated) with Vela Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vela Large Cap has no effect on the direction of Large Cap i.e., Large Cap and Vela Large go up and down completely randomly.

Pair Corralation between Large Cap and Vela Large

Assuming the 90 days horizon Large Cap Growth Profund is expected to under-perform the Vela Large. In addition to that, Large Cap is 1.96 times more volatile than Vela Large Cap. It trades about -0.22 of its total potential returns per unit of risk. Vela Large Cap is currently generating about -0.08 per unit of volatility. If you would invest  1,632  in Vela Large Cap on January 26, 2024 and sell it today you would lose (15.00) from holding Vela Large Cap or give up 0.92% of portfolio value over 90 days.

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

Large Cap Growth Profund  vs.  Vela Large Cap

Large Cap Growth

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vela Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vela Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vela Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Vela Large

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

The idea behind Large Cap Growth Profund and Vela Large Cap 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.