Correlation Between MLN and JAR
Can any of the company-specific risk be diversified away by investing in both MLN and JAR 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 MLN and JAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MLN and JAR, you can compare the effects of market volatilities on MLN and JAR 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 MLN with a short position of JAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of MLN and JAR.
Diversification Opportunities for MLN and JAR
Modest diversification
The 3 months correlation between MLN and JAR is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding MLN and JAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAR and MLN 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 MLN are associated (or correlated) with JAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAR has no effect on the direction of MLN i.e., MLN and JAR go up and down completely randomly.
Pair Corralation between MLN and JAR
Assuming the 90 days trading horizon MLN is expected to under-perform the JAR. In addition to that, MLN is 1.25 times more volatile than JAR. It trades about -0.35 of its total potential returns per unit of risk. JAR is currently generating about -0.14 per unit of volatility. If you would invest 0.38 in JAR on November 8, 2024 and sell it today you would lose (0.04) from holding JAR or give up 11.02% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MLN vs. JAR
Performance |
| Timeline |
| MLN |
| JAR |
MLN and JAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MLN and JAR
The main advantage of trading using opposite MLN and JAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MLN position performs unexpectedly, JAR 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 JAR will offset losses from the drop in JAR's long position.The idea behind MLN and JAR 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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