Correlation Between M Large and Transportation Fund

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

Diversification Opportunities for M Large and Transportation Fund

0.47

Correlation Coefficient

M Large  Transportation Fund

Very weak diversification

The 3 months correlation between MTCGX and Transportation is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Transportation Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund Class 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 Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund Class has no effect on the direction of M Large i.e., M Large and Transportation Fund go up and down completely randomly.

Pair Corralation between M Large and Transportation Fund

Assuming the 90 days horizon M Large Cap is expected to under-perform the Transportation Fund. In addition to that, M Large is 1.3 times more volatile than Transportation Fund Class. It trades about -0.03 of its total potential returns per unit of risk. Transportation Fund Class is currently generating about 0.09 per unit of volatility. If you would invest  4,204  in Transportation Fund Class on October 7, 2024 and sell it today you would earn a total of  284.00  from holding Transportation Fund Class or generate 6.76% return on investment over 90 days.

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

M Large Cap  vs.  Transportation Fund Class

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.

Transportation Fund Class

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Class are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Transportation Fund may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with M Large and Transportation Fund

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

The idea behind M Large Cap and Transportation Fund Class 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.