Correlation Between MNW and SC
Can any of the company-specific risk be diversified away by investing in both MNW and SC 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 MNW and SC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MNW and SC, you can compare the effects of market volatilities on MNW and SC 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 MNW with a short position of SC. Check out your portfolio center. Please also check ongoing floating volatility patterns of MNW and SC.
Diversification Opportunities for MNW and SC
Modest diversification
The 3 months correlation between MNW and SC is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding MNW and SC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SC and MNW 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 MNW are associated (or correlated) with SC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SC has no effect on the direction of MNW i.e., MNW and SC go up and down completely randomly.
Pair Corralation between MNW and SC
Assuming the 90 days trading horizon MNW is expected to under-perform the SC. In addition to that, MNW is 4.9 times more volatile than SC. It trades about -0.31 of its total potential returns per unit of risk. SC is currently generating about -0.53 per unit of volatility. If you would invest 0.63 in SC on November 10, 2024 and sell it today you would lose (0.24) from holding SC or give up 38.58% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MNW vs. SC
Performance |
| Timeline |
| MNW |
| SC |
MNW and SC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MNW and SC
The main advantage of trading using opposite MNW and SC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MNW position performs unexpectedly, SC 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 SC will offset losses from the drop in SC's long position.The idea behind MNW and SC 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 Global Correlations module to find global opportunities by holding instruments from different markets.
Other Complementary Tools
| CEOs Directory Screen CEOs from public companies around the world | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum |