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

0.58

Correlation Coefficient

Meridian Contrarian  Meridian Equity

Very weak diversification

The 3 months correlation between Meridian and Meridian is 0.58. 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 generate 0.44 times more return on investment than Meridian Equity. However, Meridian Trarian Fund is 2.25 times less risky than Meridian Equity. It trades about -0.37 of its potential returns per unit of risk. Meridian Equity Income is currently generating about -0.25 per unit of risk. If you would invest  4,007  in Meridian Trarian Fund on October 11, 2024 and sell it today you would lose (342.00) from holding Meridian Trarian Fund or give up 8.54% of portfolio value over 90 days.

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

Meridian Trarian Fund  vs.  Meridian Equity Income

Meridian Contrarian

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Meridian Contrarian is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Meridian Equity Income

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.