Correlation Between Mount Gibson and FLOW TRADERS

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

By analyzing existing cross correlation between Mount Gibson Iron and FLOW TRADERS LTD, you can compare the effects of market volatilities on Mount Gibson and FLOW TRADERS 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 Mount Gibson with a short position of FLOW TRADERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mount Gibson and FLOW TRADERS.

Diversification Opportunities for Mount Gibson and FLOW TRADERS

-0.17

Correlation Coefficient

Mount Gibson  FLOW TRADERS

Good diversification

The 3 months correlation between Mount and FLOW is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Mount Gibson Iron and FLOW TRADERS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FLOW TRADERS LTD and Mount Gibson 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 Mount Gibson Iron are associated (or correlated) with FLOW TRADERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FLOW TRADERS LTD has no effect on the direction of Mount Gibson i.e., Mount Gibson and FLOW TRADERS go up and down completely randomly.

Pair Corralation between Mount Gibson and FLOW TRADERS

Assuming the 90 days horizon Mount Gibson Iron is expected to generate 1.75 times more return on investment than FLOW TRADERS. However, Mount Gibson is 1.75 times more volatile than FLOW TRADERS LTD. It trades about 0.18 of its potential returns per unit of risk. FLOW TRADERS LTD is currently generating about 0.21 per unit of risk. If you would invest  17.00  in Mount Gibson Iron on October 26, 2024 and sell it today you would earn a total of  2.00  from holding Mount Gibson Iron or generate 11.76% return on investment over 90 days.

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

Mount Gibson Iron  vs.  FLOW TRADERS LTD

Mount Gibson Iron

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mount Gibson Iron are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Mount Gibson may actually be approaching a critical reversion point that can send shares even higher in February 2025.

FLOW TRADERS LTD

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FLOW TRADERS LTD are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FLOW TRADERS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Mount Gibson and FLOW TRADERS

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

The idea behind Mount Gibson Iron and FLOW TRADERS LTD 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.