Correlation Between Microfriend and Stic Investments

Can any of the company-specific risk be diversified away by investing in both Microfriend and Stic Investments 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 Microfriend and Stic Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microfriend and Stic Investments, you can compare the effects of market volatilities on Microfriend and Stic Investments 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 Microfriend with a short position of Stic Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microfriend and Stic Investments.

Diversification Opportunities for Microfriend and Stic Investments

-0.45

Correlation Coefficient

Microfriend  Stic Investments

Very good diversification

The 3 months correlation between Microfriend and Stic is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Microfriend and Stic Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stic Investments and Microfriend 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 Microfriend are associated (or correlated) with Stic Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stic Investments has no effect on the direction of Microfriend i.e., Microfriend and Stic Investments go up and down completely randomly.

Pair Corralation between Microfriend and Stic Investments

Assuming the 90 days trading horizon Microfriend is expected to generate 1.69 times more return on investment than Stic Investments. However, Microfriend is 1.69 times more volatile than Stic Investments. It trades about 0.03 of its potential returns per unit of risk. Stic Investments is currently generating about 0.04 per unit of risk. If you would invest  286,000  in Microfriend on October 5, 2024 and sell it today you would earn a total of  1,500  from holding Microfriend or generate 0.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Microfriend  vs.  Stic Investments

Microfriend

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Stic Investments

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stic Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Stic Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Microfriend and Stic Investments

The main advantage of trading using opposite Microfriend and Stic Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microfriend position performs unexpectedly, Stic Investments 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 Stic Investments will offset losses from the drop in Stic Investments' long position.

The idea behind Microfriend and Stic Investments 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.