Correlation Between Large Cap and Sterling Capital

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

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

Diversification Opportunities for Large Cap and Sterling Capital

0.95

Correlation Coefficient

Large Cap  Sterling Capital

Almost no diversification

The 3 months correlation between Large and Sterling is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund and Sterling Capital Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Equity 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 Fund are associated (or correlated) with Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Equity has no effect on the direction of Large Cap i.e., Large Cap and Sterling Capital go up and down completely randomly.

Pair Corralation between Large Cap and Sterling Capital

Assuming the 90 days horizon Large Cap Fund is expected to generate 0.68 times more return on investment than Sterling Capital. However, Large Cap Fund is 1.48 times less risky than Sterling Capital. It trades about 0.09 of its potential returns per unit of risk. Sterling Capital Equity is currently generating about -0.01 per unit of risk. If you would invest  1,110  in Large Cap Fund on February 18, 2025 and sell it today you would earn a total of  392.00  from holding Large Cap Fund or generate 35.32% return on investment over 90 days.

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

Large Cap Fund  vs.  Sterling Capital Equity

Large Cap Fund

Risk-Adjusted Performance

Very Weak

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

Sterling Capital Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Capital Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Sterling Capital 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 Sterling Capital

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

The idea behind Large Cap Fund and Sterling Capital Equity 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.