Correlation Between Meridian Small and Meridian Equity
Can any of the company-specific risk be diversified away by investing in both Meridian Small and Meridian Equity 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 Meridian Small and Meridian Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Meridian Small Cap and Meridian Equity Income, you can compare the effects of market volatilities on Meridian Small and Meridian Equity 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 Meridian Small with a short position of Meridian Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meridian Small and Meridian Equity.
Diversification Opportunities for Meridian Small and Meridian Equity
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Meridian and Meridian is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Meridian Small Cap and Meridian Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Equity Income and Meridian Small 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 Meridian Small Cap are associated (or correlated) with Meridian Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Equity Income has no effect on the direction of Meridian Small i.e., Meridian Small and Meridian Equity go up and down completely randomly.
Pair Corralation between Meridian Small and Meridian Equity
Assuming the 90 days horizon Meridian Small Cap is expected to under-perform the Meridian Equity. In addition to that, Meridian Small is 1.72 times more volatile than Meridian Equity Income. It trades about -0.02 of its total potential returns per unit of risk. Meridian Equity Income is currently generating about -0.02 per unit of volatility. If you would invest 1,412 in Meridian Equity Income on September 12, 2024 and sell it today you would lose (3.00) from holding Meridian Equity Income or give up 0.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Meridian Small Cap vs. Meridian Equity Income
Performance |
| Timeline |
| Meridian Small Cap |
| Meridian Equity Income |
Meridian Small and Meridian Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Meridian Small and Meridian Equity
The main advantage of trading using opposite Meridian Small and Meridian Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meridian Small position performs unexpectedly, Meridian Equity 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 Meridian Equity will offset losses from the drop in Meridian Equity's long position.| Meridian Small vs. Invesco Porate Bond | Meridian Small vs. Invesco Stock Fund | Meridian Small vs. Invesco Growth And | Meridian Small vs. Invesco Equity And |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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