Correlation Between Mill City and Sparta Capital

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

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

Diversification Opportunities for Mill City and Sparta Capital

-0.67

Correlation Coefficient

Mill City  Sparta Capital

Excellent diversification

The 3 months correlation between Mill and Sparta is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Mill City Ventures and Sparta Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparta Capital and Mill City 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 Mill City Ventures are associated (or correlated) with Sparta Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparta Capital has no effect on the direction of Mill City i.e., Mill City and Sparta Capital go up and down completely randomly.

Pair Corralation between Mill City and Sparta Capital

Given the investment horizon of 90 days Mill City Ventures is expected to generate 1.97 times more return on investment than Sparta Capital. However, Mill City is 1.97 times more volatile than Sparta Capital. It trades about 0.03 of its potential returns per unit of risk. Sparta Capital is currently generating about -0.13 per unit of risk. If you would invest  201.00  in Mill City Ventures on November 27, 2024 and sell it today you would lose (6.00) from holding Mill City Ventures or give up 2.99% of portfolio value over 90 days.

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

Mill City Ventures  vs.  Sparta Capital

Mill City Ventures

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mill City Ventures are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mill City unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sparta Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sparta Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Mill City and Sparta Capital

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

The idea behind Mill City Ventures and Sparta Capital 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.