Correlation Between Mekonomen and Midsummer

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

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

Diversification Opportunities for Mekonomen and Midsummer

-0.02

Correlation Coefficient

Mekonomen  Midsummer

Good diversification

The 3 months correlation between Mekonomen and Midsummer is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Mekonomen AB and Midsummer AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midsummer AB and Mekonomen 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 Mekonomen AB are associated (or correlated) with Midsummer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midsummer AB has no effect on the direction of Mekonomen i.e., Mekonomen and Midsummer go up and down completely randomly.

Pair Corralation between Mekonomen and Midsummer

Assuming the 90 days trading horizon Mekonomen AB is expected to generate 0.28 times more return on investment than Midsummer. However, Mekonomen AB is 3.57 times less risky than Midsummer. It trades about 0.03 of its potential returns per unit of risk. Midsummer AB is currently generating about -0.03 per unit of risk. If you would invest  10,634  in Mekonomen AB on October 10, 2024 and sell it today you would earn a total of  2,446  from holding Mekonomen AB or generate 23.0% return on investment over 90 days.

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

Mekonomen AB  vs.  Midsummer AB

Mekonomen AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mekonomen AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mekonomen is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Midsummer AB

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Midsummer AB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Midsummer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mekonomen and Midsummer

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

The idea behind Mekonomen AB and Midsummer AB 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.