Correlation Between Madison Pacific and Diamond Estates

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

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

Diversification Opportunities for Madison Pacific and Diamond Estates

0.67

Correlation Coefficient

Madison Pacific  Diamond Estates

Poor diversification

The 3 months correlation between Madison and Diamond is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Madison Pacific Properties and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines and Madison Pacific 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 Madison Pacific Properties are associated (or correlated) with Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of Madison Pacific i.e., Madison Pacific and Diamond Estates go up and down completely randomly.

Pair Corralation between Madison Pacific and Diamond Estates

Assuming the 90 days trading horizon Madison Pacific Properties is expected to generate 0.24 times more return on investment than Diamond Estates. However, Madison Pacific Properties is 4.25 times less risky than Diamond Estates. It trades about -0.09 of its potential returns per unit of risk. Diamond Estates Wines is currently generating about -0.07 per unit of risk. If you would invest  450.00  in Madison Pacific Properties on September 14, 2024 and sell it today you would lose (10.00) from holding Madison Pacific Properties or give up 2.22% of portfolio value over 90 days.

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

Madison Pacific Properties  vs.  Diamond Estates Wines

Madison Pacific Prop

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Pacific Properties are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Madison Pacific is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Diamond Estates Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Madison Pacific and Diamond Estates

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

The idea behind Madison Pacific Properties and Diamond Estates Wines 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.