Correlation Between M Large and Abbey Capital

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

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

Diversification Opportunities for M Large and Abbey Capital

0.37

Correlation Coefficient

M Large  Abbey Capital

Weak diversification

The 3 months correlation between MTCGX and Abbey is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Abbey Capital Multi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbey Capital Multi and M Large 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 M Large Cap are associated (or correlated) with Abbey Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbey Capital Multi has no effect on the direction of M Large i.e., M Large and Abbey Capital go up and down completely randomly.

Pair Corralation between M Large and Abbey Capital

Assuming the 90 days horizon M Large Cap is expected to generate 1.71 times more return on investment than Abbey Capital. However, M Large is 1.71 times more volatile than Abbey Capital Multi. It trades about -0.03 of its potential returns per unit of risk. Abbey Capital Multi is currently generating about -0.07 per unit of risk. If you would invest  3,658  in M Large Cap on October 10, 2024 and sell it today you would lose (287.00) from holding M Large Cap or give up 7.85% of portfolio value over 90 days.

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

M Large Cap  vs.  Abbey Capital Multi

M Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, M Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Abbey Capital Multi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abbey Capital Multi has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Abbey Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with M Large and Abbey Capital

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

The idea behind M Large Cap and Abbey Capital Multi 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.