Correlation Between Merchants National and Monarch Cement

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

By analyzing existing cross correlation between Merchants National Properties and The Monarch Cement, you can compare the effects of market volatilities on Merchants National and Monarch Cement 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 Merchants National with a short position of Monarch Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merchants National and Monarch Cement.

Diversification Opportunities for Merchants National and Monarch Cement

-0.15

Correlation Coefficient

Merchants National  Monarch Cement

Good diversification

The 3 months correlation between Merchants and Monarch is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Merchants National Properties and The Monarch Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monarch Cement and Merchants National 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 Merchants National Properties are associated (or correlated) with Monarch Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monarch Cement has no effect on the direction of Merchants National i.e., Merchants National and Monarch Cement go up and down completely randomly.

Pair Corralation between Merchants National and Monarch Cement

Given the investment horizon of 90 days Merchants National is expected to generate 3.74 times less return on investment than Monarch Cement. In addition to that, Merchants National is 3.29 times more volatile than The Monarch Cement. It trades about 0.01 of its total potential returns per unit of risk. The Monarch Cement is currently generating about 0.11 per unit of volatility. If you would invest  21,581  in The Monarch Cement on October 10, 2024 and sell it today you would earn a total of  269.00  from holding The Monarch Cement or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Merchants National Properties  vs.  The Monarch Cement

Merchants National

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants National Properties are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Merchants National is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Monarch Cement

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Monarch Cement are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Monarch Cement displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merchants National and Monarch Cement

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

The idea behind Merchants National Properties and The Monarch Cement 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.