Correlation Between MPI and HIM International
Can any of the company-specific risk be diversified away by investing in both MPI and HIM International 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 MPI and HIM International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MPI Corporation and HIM International Music, you can compare the effects of market volatilities on MPI and HIM International 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 MPI with a short position of HIM International. Check out your portfolio center. Please also check ongoing floating volatility patterns of MPI and HIM International.
Diversification Opportunities for MPI and HIM International
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between MPI and HIM is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding MPI Corp. and HIM International Music in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HIM International Music and MPI 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 MPI Corporation are associated (or correlated) with HIM International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HIM International Music has no effect on the direction of MPI i.e., MPI and HIM International go up and down completely randomly.
Pair Corralation between MPI and HIM International
Assuming the 90 days trading horizon MPI Corporation is expected to generate 4.19 times more return on investment than HIM International. However, MPI is 4.19 times more volatile than HIM International Music. It trades about -0.02 of its potential returns per unit of risk. HIM International Music is currently generating about -0.12 per unit of risk. If you would invest 90,100 in MPI Corporation on November 5, 2024 and sell it today you would lose (2,000) from holding MPI Corporation or give up 2.22% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MPI Corp. vs. HIM International Music
Performance |
| Timeline |
| MPI Corporation |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Insignificant
| HIM International Music |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
MPI and HIM International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MPI and HIM International
The main advantage of trading using opposite MPI and HIM International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MPI position performs unexpectedly, HIM International 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 HIM International will offset losses from the drop in HIM International's long position.The idea behind MPI Corporation and HIM International Music 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.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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