Correlation Between Associated British and Monks Investment

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

By analyzing existing cross correlation between Associated British Foods and Monks Investment Trust, you can compare the effects of market volatilities on Associated British and Monks Investment 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 Associated British with a short position of Monks Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Monks Investment.

Diversification Opportunities for Associated British and Monks Investment

-0.07

Correlation Coefficient

Associated British  Monks Investment

Good diversification

The 3 months correlation between Associated and Monks is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Monks Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monks Investment Trust and Associated British 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 Associated British Foods are associated (or correlated) with Monks Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monks Investment Trust has no effect on the direction of Associated British i.e., Associated British and Monks Investment go up and down completely randomly.

Pair Corralation between Associated British and Monks Investment

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Monks Investment. In addition to that, Associated British is 1.15 times more volatile than Monks Investment Trust. It trades about -0.06 of its total potential returns per unit of risk. Monks Investment Trust is currently generating about -0.05 per unit of volatility. If you would invest  126,800  in Monks Investment Trust on December 24, 2024 and sell it today you would lose (5,200) from holding Monks Investment Trust or give up 4.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Associated British Foods  vs.  Monks Investment Trust

Associated British Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Associated British is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Monks Investment Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monks Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monks Investment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Associated British and Monks Investment

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

The idea behind Associated British Foods and Monks Investment Trust 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 Stocks Directory module to find actively traded stocks across global markets.