Correlation Between Huge and MTN

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

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

Diversification Opportunities for Huge and MTN

0.3

Correlation Coefficient

Huge  MTN

Weak diversification

The 3 months correlation between Huge and MTN is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Huge Group and MTN Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTN Group and Huge 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 Huge Group are associated (or correlated) with MTN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTN Group has no effect on the direction of Huge i.e., Huge and MTN go up and down completely randomly.

Pair Corralation between Huge and MTN

Assuming the 90 days trading horizon Huge Group is expected to generate 2.46 times more return on investment than MTN. However, Huge is 2.46 times more volatile than MTN Group. It trades about 0.04 of its potential returns per unit of risk. MTN Group is currently generating about -0.08 per unit of risk. If you would invest  20,000  in Huge Group on September 14, 2024 and sell it today you would earn a total of  1,000.00  from holding Huge Group or generate 5.0% return on investment over 90 days.

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

Huge Group  vs.  MTN Group

Huge Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huge Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Huge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MTN Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTN Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Huge and MTN

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

The idea behind Huge Group and MTN Group 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.