Correlation Between MGP Ingredients and Innovation Beverage

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Can any of the company-specific risk be diversified away by investing in both MGP Ingredients and Innovation Beverage 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 MGP Ingredients and Innovation Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MGP Ingredients and Innovation Beverage Group, you can compare the effects of market volatilities on MGP Ingredients and Innovation Beverage 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 MGP Ingredients with a short position of Innovation Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of MGP Ingredients and Innovation Beverage.

Diversification Opportunities for MGP Ingredients and Innovation Beverage

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between MGP and Innovation is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding MGP Ingredients and Innovation Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovation Beverage and MGP Ingredients 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 MGP Ingredients are associated (or correlated) with Innovation Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovation Beverage has no effect on the direction of MGP Ingredients i.e., MGP Ingredients and Innovation Beverage go up and down completely randomly.

Pair Corralation between MGP Ingredients and Innovation Beverage

Given the investment horizon of 90 days MGP Ingredients is expected to generate 0.19 times more return on investment than Innovation Beverage. However, MGP Ingredients is 5.13 times less risky than Innovation Beverage. It trades about -0.07 of its potential returns per unit of risk. Innovation Beverage Group is currently generating about -0.09 per unit of risk. If you would invest  10,041  in MGP Ingredients on August 29, 2024 and sell it today you would lose (5,599) from holding MGP Ingredients or give up 55.76% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy11.2%
ValuesDaily Returns

MGP Ingredients  vs.  Innovation Beverage Group

 Performance 
       Timeline  
MGP Ingredients 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.
Innovation Beverage 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Innovation Beverage Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

MGP Ingredients and Innovation Beverage Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MGP Ingredients and Innovation Beverage

The main advantage of trading using opposite MGP Ingredients and Innovation Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGP Ingredients position performs unexpectedly, Innovation Beverage 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 Innovation Beverage will offset losses from the drop in Innovation Beverage's long position.
The idea behind MGP Ingredients and Innovation Beverage Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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