Correlation Between Meridian Contrarian and Meridian Equity

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

By analyzing existing cross correlation between Meridian Trarian Fund and Meridian Equity Income, you can compare the effects of market volatilities on Meridian Contrarian and Meridian Equity 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 Meridian Contrarian with a short position of Meridian Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meridian Contrarian and Meridian Equity.

Diversification Opportunities for Meridian Contrarian and Meridian Equity

0.91

Correlation Coefficient

Meridian Contrarian  Meridian Equity

Almost no diversification

The 3 months correlation between Meridian and Meridian is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Meridian Trarian Fund and Meridian Equity Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Equity Income and Meridian Contrarian 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 Meridian Trarian Fund are associated (or correlated) with Meridian Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Equity Income has no effect on the direction of Meridian Contrarian i.e., Meridian Contrarian and Meridian Equity go up and down completely randomly.

Pair Corralation between Meridian Contrarian and Meridian Equity

Assuming the 90 days horizon Meridian Trarian Fund is expected to under-perform the Meridian Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Meridian Trarian Fund is 1.44 times less risky than Meridian Equity. The mutual fund trades about -0.23 of its potential returns per unit of risk. The Meridian Equity Income is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  1,482  in Meridian Equity Income on December 4, 2024 and sell it today you would lose (206.00) from holding Meridian Equity Income or give up 13.9% of portfolio value over 90 days.

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

Meridian Trarian Fund  vs.  Meridian Equity Income

Meridian Contrarian

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meridian Trarian Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Meridian Equity Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meridian Equity Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Meridian Contrarian and Meridian Equity

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

The idea behind Meridian Trarian Fund and Meridian Equity Income 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.