Correlation Between Mega Financial and Sunspring Metal

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

By analyzing existing cross correlation between Mega Financial Holding and Sunspring Metal Corp, you can compare the effects of market volatilities on Mega Financial and Sunspring Metal 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 Mega Financial with a short position of Sunspring Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Financial and Sunspring Metal.

Diversification Opportunities for Mega Financial and Sunspring Metal

-0.15

Correlation Coefficient

Mega Financial  Sunspring Metal

Good diversification

The 3 months correlation between Mega and Sunspring is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Mega Financial Holding and Sunspring Metal Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunspring Metal Corp and Mega Financial 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 Mega Financial Holding are associated (or correlated) with Sunspring Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunspring Metal Corp has no effect on the direction of Mega Financial i.e., Mega Financial and Sunspring Metal go up and down completely randomly.

Pair Corralation between Mega Financial and Sunspring Metal

Assuming the 90 days trading horizon Mega Financial is expected to generate 6.8 times less return on investment than Sunspring Metal. But when comparing it to its historical volatility, Mega Financial Holding is 4.02 times less risky than Sunspring Metal. It trades about 0.03 of its potential returns per unit of risk. Sunspring Metal Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,215  in Sunspring Metal Corp on September 14, 2024 and sell it today you would earn a total of  65.00  from holding Sunspring Metal Corp or generate 2.02% return on investment over 90 days.

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

Mega Financial Holding  vs.  Sunspring Metal Corp

Mega Financial Holding

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Mega Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Mega Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sunspring Metal Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunspring Metal Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Mega Financial and Sunspring Metal

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

The idea behind Mega Financial Holding and Sunspring Metal Corp 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.