Correlation Between M Large and Optimum Fixed

Can any of the company-specific risk be diversified away by investing in both M Large and Optimum Fixed 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 Optimum Fixed 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 Optimum Fixed Income, you can compare the effects of market volatilities on M Large and Optimum Fixed 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 Optimum Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of M Large and Optimum Fixed.

Diversification Opportunities for M Large and Optimum Fixed

0.61

Correlation Coefficient

M Large  Optimum Fixed

Poor diversification

The 3 months correlation between MTCGX and OPTIMUM is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Optimum Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Fixed Income 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 Optimum Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Fixed Income has no effect on the direction of M Large i.e., M Large and Optimum Fixed go up and down completely randomly.

Pair Corralation between M Large and Optimum Fixed

Assuming the 90 days horizon M Large Cap is expected to under-perform the Optimum Fixed. In addition to that, M Large is 5.21 times more volatile than Optimum Fixed Income. It trades about -0.04 of its total potential returns per unit of risk. Optimum Fixed Income is currently generating about -0.04 per unit of volatility. If you would invest  858.00  in Optimum Fixed Income on October 23, 2024 and sell it today you would lose (7.00) from holding Optimum Fixed Income or give up 0.82% of portfolio value over 90 days.

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

M Large Cap  vs.  Optimum Fixed Income

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.

Optimum Fixed Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optimum Fixed Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Optimum Fixed 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 Optimum Fixed

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

The idea behind M Large Cap and Optimum Fixed Income 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.