Correlation Between MICRODATA and MED PAPER

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

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

Diversification Opportunities for MICRODATA and MED PAPER

0.29

Correlation Coefficient

MICRODATA  MED PAPER

Modest diversification

The 3 months correlation between MICRODATA and MED is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding MICRODATA and MED PAPER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MED PAPER and MICRODATA 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 MICRODATA are associated (or correlated) with MED PAPER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MED PAPER has no effect on the direction of MICRODATA i.e., MICRODATA and MED PAPER go up and down completely randomly.

Pair Corralation between MICRODATA and MED PAPER

Assuming the 90 days trading horizon MICRODATA is expected to generate 1.04 times more return on investment than MED PAPER. However, MICRODATA is 1.04 times more volatile than MED PAPER. It trades about 0.17 of its potential returns per unit of risk. MED PAPER is currently generating about 0.11 per unit of risk. If you would invest  63,110  in MICRODATA on December 28, 2024 and sell it today you would earn a total of  19,290  from holding MICRODATA or generate 30.57% return on investment over 90 days.

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

MICRODATA  vs.  MED PAPER

MICRODATA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MICRODATA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, MICRODATA sustained solid returns over the last few months and may actually be approaching a breakup point.

MED PAPER

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MED PAPER are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, MED PAPER reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MICRODATA and MED PAPER

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

The idea behind MICRODATA and MED PAPER 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.