Correlation Between Mega Financial and Great China

Can any of the company-specific risk be diversified away by investing in both Mega Financial and Great China 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 Great China 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 Great China Metal, you can compare the effects of market volatilities on Mega Financial and Great China 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 Great China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Financial and Great China.

Diversification Opportunities for Mega Financial and Great China

0.26

Correlation Coefficient

Mega Financial  Great China

Modest diversification

The 3 months correlation between Mega and Great is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Mega Financial Holding and Great China Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great China Metal 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 Great China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great China Metal has no effect on the direction of Mega Financial i.e., Mega Financial and Great China go up and down completely randomly.

Pair Corralation between Mega Financial and Great China

Assuming the 90 days trading horizon Mega Financial Holding is expected to under-perform the Great China. In addition to that, Mega Financial is 2.66 times more volatile than Great China Metal. It trades about -0.03 of its total potential returns per unit of risk. Great China Metal is currently generating about 0.04 per unit of volatility. If you would invest  2,290  in Great China Metal on September 17, 2024 and sell it today you would earn a total of  5.00  from holding Great China Metal or generate 0.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Mega Financial Holding  vs.  Great China Metal

Mega Financial Holding

Risk-Adjusted Performance

0 of 100

Very 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.

Great China Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mega Financial and Great China

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

The idea behind Mega Financial Holding and Great China Metal 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.