Correlation Between CAC Consumer and Mediantechn

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

By analyzing existing cross correlation between CAC Consumer Goods and Mediantechn, you can compare the effects of market volatilities on CAC Consumer and Mediantechn 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 CAC Consumer with a short position of Mediantechn. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAC Consumer and Mediantechn.

Diversification Opportunities for CAC Consumer and Mediantechn

0.29

Correlation Coefficient

CAC Consumer  Mediantechn

Modest diversification

The 3 months correlation between CAC and Mediantechn is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding CAC Consumer Goods and Mediantechn in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mediantechn and CAC Consumer 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 CAC Consumer Goods are associated (or correlated) with Mediantechn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mediantechn has no effect on the direction of CAC Consumer i.e., CAC Consumer and Mediantechn go up and down completely randomly.

Pair Corralation between CAC Consumer and Mediantechn

Assuming the 90 days trading horizon CAC Consumer is expected to generate 3.9 times less return on investment than Mediantechn. But when comparing it to its historical volatility, CAC Consumer Goods is 4.22 times less risky than Mediantechn. It trades about 0.26 of its potential returns per unit of risk. Mediantechn is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  306.00  in Mediantechn on September 27, 2024 and sell it today you would earn a total of  71.00  from holding Mediantechn or generate 23.2% return on investment over 90 days.

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

CAC Consumer Goods  vs.  Mediantechn

Pair Trading with CAC Consumer and Mediantechn

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

The idea behind CAC Consumer Goods and Mediantechn 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.