Correlation Between M Food and Cloud Technologies

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Can any of the company-specific risk be diversified away by investing in both M Food and Cloud Technologies 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 M Food and Cloud Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between M Food SA and Cloud Technologies SA, you can compare the effects of market volatilities on M Food and Cloud Technologies 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 M Food with a short position of Cloud Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of M Food and Cloud Technologies.

Diversification Opportunities for M Food and Cloud Technologies

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between MFD and Cloud is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding M Food SA and Cloud Technologies SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cloud Technologies and M Food 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 M Food SA are associated (or correlated) with Cloud Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cloud Technologies has no effect on the direction of M Food i.e., M Food and Cloud Technologies go up and down completely randomly.

Pair Corralation between M Food and Cloud Technologies

Assuming the 90 days trading horizon M Food SA is expected to under-perform the Cloud Technologies. In addition to that, M Food is 1.16 times more volatile than Cloud Technologies SA. It trades about -0.22 of its total potential returns per unit of risk. Cloud Technologies SA is currently generating about 0.01 per unit of volatility. If you would invest  4,510  in Cloud Technologies SA on October 10, 2024 and sell it today you would lose (10.00) from holding Cloud Technologies SA or give up 0.22% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy93.75%
ValuesDaily Returns

M Food SA  vs.  Cloud Technologies SA

 Performance 
       Timeline  
M Food SA 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days M Food SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
Cloud Technologies 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Cloud Technologies SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

M Food and Cloud Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with M Food and Cloud Technologies

The main advantage of trading using opposite M Food and Cloud Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M Food position performs unexpectedly, Cloud Technologies 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 Cloud Technologies will offset losses from the drop in Cloud Technologies' long position.
The idea behind M Food SA and Cloud Technologies SA 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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