Correlation Between Blue Coast and MIC Electronics

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

By analyzing existing cross correlation between Blue Coast Hotels and MIC Electronics Limited, you can compare the effects of market volatilities on Blue Coast and MIC Electronics 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 Blue Coast with a short position of MIC Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Coast and MIC Electronics.

Diversification Opportunities for Blue Coast and MIC Electronics

-0.22

Correlation Coefficient

Blue Coast  MIC Electronics

Very good diversification

The 3 months correlation between Blue and MIC is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Blue Coast Hotels and MIC Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MIC Electronics and Blue Coast 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 Blue Coast Hotels are associated (or correlated) with MIC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MIC Electronics has no effect on the direction of Blue Coast i.e., Blue Coast and MIC Electronics go up and down completely randomly.

Pair Corralation between Blue Coast and MIC Electronics

Assuming the 90 days trading horizon Blue Coast Hotels is expected to generate 1.42 times more return on investment than MIC Electronics. However, Blue Coast is 1.42 times more volatile than MIC Electronics Limited. It trades about 0.76 of its potential returns per unit of risk. MIC Electronics Limited is currently generating about -0.07 per unit of risk. If you would invest  968.00  in Blue Coast Hotels on October 3, 2024 and sell it today you would earn a total of  679.00  from holding Blue Coast Hotels or generate 70.14% return on investment over 90 days.

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

Blue Coast Hotels  vs.  MIC Electronics Limited

Blue Coast Hotels

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

MIC Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MIC Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Blue Coast and MIC Electronics

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

The idea behind Blue Coast Hotels and MIC Electronics Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.