Correlation Between Monks Investment and Smithson Investment

Can any of the company-specific risk be diversified away by investing in both Monks Investment and Smithson Investment 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 Smithson Investment 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 Smithson Investment Trust, you can compare the effects of market volatilities on Monks Investment and Smithson Investment 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 Smithson Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monks Investment and Smithson Investment.

Diversification Opportunities for Monks Investment and Smithson Investment

0.77

Correlation Coefficient

Monks Investment  Smithson Investment

Poor diversification

The 3 months correlation between Monks and Smithson is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and Smithson Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smithson Investment Trust 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 Smithson Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smithson Investment Trust has no effect on the direction of Monks Investment i.e., Monks Investment and Smithson Investment go up and down completely randomly.

Pair Corralation between Monks Investment and Smithson Investment

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 1.04 times more return on investment than Smithson Investment. However, Monks Investment is 1.04 times more volatile than Smithson Investment Trust. It trades about 0.23 of its potential returns per unit of risk. Smithson Investment Trust is currently generating about 0.09 per unit of risk. If you would invest  112,400  in Monks Investment Trust on September 4, 2024 and sell it today you would earn a total of  15,400  from holding Monks Investment Trust or generate 13.7% return on investment over 90 days.

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

Monks Investment Trust  vs.  Smithson Investment Trust

Monks Investment Trust

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monks Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Smithson Investment Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smithson Investment Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Smithson Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monks Investment and Smithson Investment

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

The idea behind Monks Investment Trust and Smithson Investment Trust 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.