Correlation Between M Large and Sierra E

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

Diversification Opportunities for M Large and Sierra E

0.29

Correlation Coefficient

M Large  Sierra E

Modest diversification

The 3 months correlation between MTCGX and Sierra is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Sierra E Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra E Retirement 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 Sierra E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra E Retirement has no effect on the direction of M Large i.e., M Large and Sierra E go up and down completely randomly.

Pair Corralation between M Large and Sierra E

Assuming the 90 days horizon M Large is expected to generate 2.02 times less return on investment than Sierra E. In addition to that, M Large is 3.49 times more volatile than Sierra E Retirement. It trades about 0.01 of its total potential returns per unit of risk. Sierra E Retirement is currently generating about 0.04 per unit of volatility. If you would invest  2,296  in Sierra E Retirement on September 12, 2024 and sell it today you would earn a total of  5.00  from holding Sierra E Retirement or generate 0.22% return on investment over 90 days.

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

M Large Cap  vs.  Sierra E Retirement

M Large Cap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, M Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sierra E Retirement

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra E Retirement are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sierra E 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 Sierra E

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

The idea behind M Large Cap and Sierra E Retirement 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.