Correlation Between Melcor Developments and Madison Pacific

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

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

Diversification Opportunities for Melcor Developments and Madison Pacific

-0.15

Correlation Coefficient

Melcor Developments  Madison Pacific

Good diversification

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

Pair Corralation between Melcor Developments and Madison Pacific

Assuming the 90 days trading horizon Melcor Developments is expected to under-perform the Madison Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Melcor Developments is 1.82 times less risky than Madison Pacific. The stock trades about -0.01 of its potential returns per unit of risk. The Madison Pacific Properties is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  442.00  in Madison Pacific Properties on December 30, 2024 and sell it today you would earn a total of  33.00  from holding Madison Pacific Properties or generate 7.47% return on investment over 90 days.

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

Melcor Developments  vs.  Madison Pacific Properties

Melcor Developments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Melcor Developments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Melcor Developments is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Madison Pacific Prop

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Pacific Properties are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Madison Pacific may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Melcor Developments and Madison Pacific

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

The idea behind Melcor Developments and Madison Pacific Properties 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.