Correlation Between LRN and MWAT
Can any of the company-specific risk be diversified away by investing in both LRN and MWAT 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 LRN and MWAT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LRN and MWAT, you can compare the effects of market volatilities on LRN and MWAT 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 LRN with a short position of MWAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of LRN and MWAT.
Diversification Opportunities for LRN and MWAT
Average diversification
The 3 months correlation between LRN and MWAT is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding LRN and MWAT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MWAT and LRN 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 LRN are associated (or correlated) with MWAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MWAT has no effect on the direction of LRN i.e., LRN and MWAT go up and down completely randomly.
Pair Corralation between LRN and MWAT
Assuming the 90 days trading horizon LRN is expected to generate 3.67 times less return on investment than MWAT. In addition to that, LRN is 3.57 times more volatile than MWAT. It trades about 0.01 of its total potential returns per unit of risk. MWAT is currently generating about 0.13 per unit of volatility. If you would invest 0.27 in MWAT on August 23, 2024 and sell it today you would earn a total of 0.21 from holding MWAT or generate 76.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 55.85% |
| Values | Daily Returns |
LRN vs. MWAT
Performance |
| Timeline |
| LRN |
| MWAT |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
LRN and MWAT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LRN and MWAT
The main advantage of trading using opposite LRN and MWAT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LRN position performs unexpectedly, MWAT 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 MWAT will offset losses from the drop in MWAT's long position.The idea behind LRN and MWAT 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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