Correlation Between Melisron and Aura Investments

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

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

Diversification Opportunities for Melisron and Aura Investments

0.35

Correlation Coefficient

Melisron  Aura Investments

Weak diversification

The 3 months correlation between Melisron and Aura is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Melisron and Aura Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aura Investments and Melisron 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 Melisron are associated (or correlated) with Aura Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aura Investments has no effect on the direction of Melisron i.e., Melisron and Aura Investments go up and down completely randomly.

Pair Corralation between Melisron and Aura Investments

Assuming the 90 days trading horizon Melisron is expected to generate 19.07 times less return on investment than Aura Investments. But when comparing it to its historical volatility, Melisron is 2.02 times less risky than Aura Investments. It trades about 0.01 of its potential returns per unit of risk. Aura Investments is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  186,300  in Aura Investments on November 29, 2024 and sell it today you would earn a total of  24,200  from holding Aura Investments or generate 12.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.04%
Values	Daily Returns

Melisron  vs.  Aura Investments

Melisron

Risk-Adjusted Performance

Weak

Over the last 90 days Melisron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Melisron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aura Investments

Risk-Adjusted Performance

OK

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

Pair Trading with Melisron and Aura Investments

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

The idea behind Melisron and Aura Investments 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.