Correlation Between MNW and LRN

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

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

Diversification Opportunities for MNW and LRN

-0.3

Correlation Coefficient

MNW  LRN

Very good diversification

The 3 months correlation between MNW and LRN is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding MNW and LRN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LRN and MNW 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 MNW are associated (or correlated) with LRN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LRN has no effect on the direction of MNW i.e., MNW and LRN go up and down completely randomly.

Pair Corralation between MNW and LRN

Assuming the 90 days trading horizon MNW is expected to generate 11.23 times more return on investment than LRN. However, MNW is 11.23 times more volatile than LRN. It trades about 0.21 of its potential returns per unit of risk. LRN is currently generating about 0.0 per unit of risk. If you would invest  47.00  in MNW on November 27, 2024 and sell it today you would lose (20.00) from holding MNW or give up 42.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

MNW  vs.  LRN

MNW

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MNW are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MNW exhibited solid returns over the last few months and may actually be approaching a breakup point.

LRN

Risk-Adjusted Performance

Very Weak

Over the last 90 days LRN has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, LRN is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MNW and LRN

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

The idea behind MNW and LRN 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.