Correlation Between AE and MANTRA
Can any of the company-specific risk be diversified away by investing in both AE and MANTRA 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 AE and MANTRA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AE and MANTRA, you can compare the effects of market volatilities on AE and MANTRA 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 AE with a short position of MANTRA. Check out your portfolio center. Please also check ongoing floating volatility patterns of AE and MANTRA.
Diversification Opportunities for AE and MANTRA
Poor diversification
The 3 months correlation between AE and MANTRA is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding AE and MANTRA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MANTRA and AE 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 AE are associated (or correlated) with MANTRA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MANTRA has no effect on the direction of AE i.e., AE and MANTRA go up and down completely randomly.
Pair Corralation between AE and MANTRA
Assuming the 90 days horizon AE is expected to generate 18.92 times less return on investment than MANTRA. But when comparing it to its historical volatility, AE is 1.47 times less risky than MANTRA. It trades about 0.01 of its potential returns per unit of risk. MANTRA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 67.00 in MANTRA on September 4, 2024 and sell it today you would earn a total of 292.00 from holding MANTRA or generate 435.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AE vs. MANTRA
Performance |
| Timeline |
| AE |
| MANTRA |
AE and MANTRA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AE and MANTRA
The main advantage of trading using opposite AE and MANTRA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AE position performs unexpectedly, MANTRA 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 MANTRA will offset losses from the drop in MANTRA's long position.The idea behind AE and MANTRA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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