Correlation Between Melisron and Castro

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

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

Diversification Opportunities for Melisron and Castro

0.86

Correlation Coefficient

Melisron  Castro

Very poor diversification

The 3 months correlation between Melisron and Castro is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Melisron and Castro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castro 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 Castro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castro has no effect on the direction of Melisron i.e., Melisron and Castro go up and down completely randomly.

Pair Corralation between Melisron and Castro

Assuming the 90 days trading horizon Melisron is expected to generate 0.72 times more return on investment than Castro. However, Melisron is 1.4 times less risky than Castro. It trades about 0.41 of its potential returns per unit of risk. Castro is currently generating about -0.06 per unit of risk. If you would invest  2,883,062  in Melisron on September 5, 2024 and sell it today you would earn a total of  305,938  from holding Melisron or generate 10.61% return on investment over 90 days.

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

Melisron  vs.  Castro

Melisron

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Melisron are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Melisron sustained solid returns over the last few months and may actually be approaching a breakup point.

Castro

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Castro are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Castro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Melisron and Castro

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

The idea behind Melisron and Castro 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.