Correlation Between MGP Ingredients and Global Clean

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

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

Diversification Opportunities for MGP Ingredients and Global Clean

0.81

Correlation Coefficient

MGP Ingredients  Global Clean

Very poor diversification

The 3 months correlation between MGP and Global is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding MGP Ingredients and Global Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Clean Energy and MGP Ingredients 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 MGP Ingredients are associated (or correlated) with Global Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Clean Energy has no effect on the direction of MGP Ingredients i.e., MGP Ingredients and Global Clean go up and down completely randomly.

Pair Corralation between MGP Ingredients and Global Clean

Given the investment horizon of 90 days MGP Ingredients is expected to under-perform the Global Clean. But the stock apears to be less risky and, when comparing its historical volatility, MGP Ingredients is 6.54 times less risky than Global Clean. The stock trades about -0.18 of its potential returns per unit of risk. The Global Clean Energy is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  95.00  in Global Clean Energy on December 19, 2024 and sell it today you would lose (20.00) from holding Global Clean Energy or give up 21.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

MGP Ingredients  vs.  Global Clean Energy

MGP Ingredients

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Global Clean Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Clean Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical and fundamental indicators, Global Clean demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MGP Ingredients and Global Clean

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

The idea behind MGP Ingredients and Global Clean Energy 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.