Correlation Between Motech Industries and MPI

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

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

Diversification Opportunities for Motech Industries and MPI

-0.63

Correlation Coefficient

Motech Industries  MPI

Excellent diversification

The 3 months correlation between Motech and MPI is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Motech Industries Co and MPI Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPI Corporation and Motech Industries 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 Motech Industries Co are associated (or correlated) with MPI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPI Corporation has no effect on the direction of Motech Industries i.e., Motech Industries and MPI go up and down completely randomly.

Pair Corralation between Motech Industries and MPI

Assuming the 90 days trading horizon Motech Industries Co is expected to generate 0.6 times more return on investment than MPI. However, Motech Industries Co is 1.66 times less risky than MPI. It trades about 0.1 of its potential returns per unit of risk. MPI Corporation is currently generating about -0.07 per unit of risk. If you would invest  2,035  in Motech Industries Co on December 23, 2024 and sell it today you would earn a total of  235.00  from holding Motech Industries Co or generate 11.55% return on investment over 90 days.

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

Motech Industries Co  vs.  MPI Corp.

Motech Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Motech Industries Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Motech Industries showed solid returns over the last few months and may actually be approaching a breakup point.

MPI Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days MPI Corporation 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 April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Motech Industries and MPI

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

The idea behind Motech Industries Co and MPI Corporation 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.