Correlation Between Magni Tech and Aeon Credit

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

By analyzing existing cross correlation between Magni Tech Industries and Aeon Credit Service, you can compare the effects of market volatilities on Magni Tech and Aeon Credit 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 Magni Tech with a short position of Aeon Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magni Tech and Aeon Credit.

Diversification Opportunities for Magni Tech and Aeon Credit

0.02

Correlation Coefficient

Magni Tech  Aeon Credit

Significant diversification

The 3 months correlation between Magni and Aeon is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Magni Tech Industries and Aeon Credit Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeon Credit Service and Magni Tech 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 Magni Tech Industries are associated (or correlated) with Aeon Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeon Credit Service has no effect on the direction of Magni Tech i.e., Magni Tech and Aeon Credit go up and down completely randomly.

Pair Corralation between Magni Tech and Aeon Credit

Assuming the 90 days trading horizon Magni Tech Industries is expected to under-perform the Aeon Credit. But the stock apears to be less risky and, when comparing its historical volatility, Magni Tech Industries is 1.08 times less risky than Aeon Credit. The stock trades about -0.12 of its potential returns per unit of risk. The Aeon Credit Service is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  622.00  in Aeon Credit Service on December 30, 2024 and sell it today you would earn a total of  1.00  from holding Aeon Credit Service or generate 0.16% return on investment over 90 days.

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

Magni Tech Industries  vs.  Aeon Credit Service

Magni Tech Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Magni Tech Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Aeon Credit Service

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeon Credit Service has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Aeon Credit is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Magni Tech and Aeon Credit

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

The idea behind Magni Tech Industries and Aeon Credit Service 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.