Correlation Between XMX and MLN
Can any of the company-specific risk be diversified away by investing in both XMX 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 XMX and MLN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between XMX and MLN, you can compare the effects of market volatilities on XMX 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 XMX with a short position of MLN. Check out your portfolio center. Please also check ongoing floating volatility patterns of XMX and MLN.
Diversification Opportunities for XMX and MLN
Very weak diversification
The 3 months correlation between XMX and MLN is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding XMX and MLN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MLN and XMX 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 XMX 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 XMX i.e., XMX and MLN go up and down completely randomly.
Pair Corralation between XMX and MLN
Assuming the 90 days trading horizon XMX is expected to generate 1.14 times more return on investment than MLN. However, XMX is 1.14 times more volatile than MLN. It trades about 0.02 of its potential returns per unit of risk. MLN is currently generating about -0.35 per unit of risk. If you would invest 0.00 in XMX on November 8, 2024 and sell it today you would earn a total of 0.00 from holding XMX or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
XMX vs. MLN
Performance |
| Timeline |
| XMX |
| MLN |
XMX and MLN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with XMX and MLN
The main advantage of trading using opposite XMX and MLN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if XMX 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 XMX 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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