Correlation Between Monks Investment and River

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

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

Diversification Opportunities for Monks Investment and River

0.81

Correlation Coefficient

Monks Investment  River

Very poor diversification

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

Pair Corralation between Monks Investment and River

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 2.0 times more return on investment than River. However, Monks Investment is 2.0 times more volatile than River and Mercantile. It trades about -0.06 of its potential returns per unit of risk. River and Mercantile is currently generating about -0.14 per unit of risk. If you would invest  125,000  in Monks Investment Trust on December 30, 2024 and sell it today you would lose (6,200) from holding Monks Investment Trust or give up 4.96% of portfolio value over 90 days.

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

Monks Investment Trust  vs.  River and Mercantile

Monks Investment Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monks Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monks Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

River and Mercantile

Risk-Adjusted Performance

Very Weak

Over the last 90 days River and Mercantile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monks Investment and River

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

The idea behind Monks Investment Trust and River and Mercantile 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.