Correlation Between MONA and DATA
Can any of the company-specific risk be diversified away by investing in both MONA and DATA 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 MONA and DATA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MONA and DATA, you can compare the effects of market volatilities on MONA and DATA 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 MONA with a short position of DATA. Check out your portfolio center. Please also check ongoing floating volatility patterns of MONA and DATA.
Diversification Opportunities for MONA and DATA
Poor diversification
The 3 months correlation between MONA and DATA is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding MONA and DATA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DATA and MONA 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 MONA are associated (or correlated) with DATA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DATA has no effect on the direction of MONA i.e., MONA and DATA go up and down completely randomly.
Pair Corralation between MONA and DATA
Assuming the 90 days trading horizon MONA is expected to generate 1.08 times less return on investment than DATA. In addition to that, MONA is 1.65 times more volatile than DATA. It trades about 0.3 of its total potential returns per unit of risk. DATA is currently generating about 0.54 per unit of volatility. If you would invest 3.30 in DATA on September 4, 2024 and sell it today you would earn a total of 1.97 from holding DATA or generate 59.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MONA vs. DATA
Performance |
| Timeline |
| MONA |
| DATA |
MONA and DATA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MONA and DATA
The main advantage of trading using opposite MONA and DATA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MONA position performs unexpectedly, DATA 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 DATA will offset losses from the drop in DATA's long position.The idea behind MONA and DATA 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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