Correlation Between POCC and MLN
Can any of the company-specific risk be diversified away by investing in both POCC and MLN 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 POCC and MLN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between POCC and MLN, you can compare the effects of market volatilities on POCC and MLN 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 POCC with a short position of MLN. Check out your portfolio center. Please also check ongoing floating volatility patterns of POCC and MLN.
Diversification Opportunities for POCC and MLN
Average diversification
The 3 months correlation between POCC and MLN is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding POCC and MLN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MLN and POCC 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 POCC are associated (or correlated) with MLN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MLN has no effect on the direction of POCC i.e., POCC and MLN go up and down completely randomly.
Pair Corralation between POCC and MLN
Assuming the 90 days trading horizon POCC is expected to generate 1.21 times more return on investment than MLN. However, POCC is 1.21 times more volatile than MLN. It trades about 0.35 of its potential returns per unit of risk. MLN is currently generating about 0.04 per unit of risk. If you would invest 0.01 in POCC on August 25, 2024 and sell it today you would earn a total of 0.00 from holding POCC or generate 36.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
POCC vs. MLN
Performance |
| Timeline |
| POCC |
| MLN |
POCC and MLN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with POCC and MLN
The main advantage of trading using opposite POCC and MLN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if POCC position performs unexpectedly, MLN 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 MLN will offset losses from the drop in MLN's long position.The idea behind POCC and MLN 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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