Correlation Between Modern Times and Gapwaves

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

By analyzing existing cross correlation between Modern Times Group and Gapwaves AB Series, you can compare the effects of market volatilities on Modern Times and Gapwaves 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 Modern Times with a short position of Gapwaves. Check out your portfolio center. Please also check ongoing floating volatility patterns of Modern Times and Gapwaves.

Diversification Opportunities for Modern Times and Gapwaves

-0.7

Correlation Coefficient

Modern Times  Gapwaves

Excellent diversification

The 3 months correlation between Modern and Gapwaves is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Modern Times Group and Gapwaves AB Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gapwaves AB Series and Modern Times 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 Modern Times Group are associated (or correlated) with Gapwaves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gapwaves AB Series has no effect on the direction of Modern Times i.e., Modern Times and Gapwaves go up and down completely randomly.

Pair Corralation between Modern Times and Gapwaves

Assuming the 90 days trading horizon Modern Times Group is expected to generate 0.16 times more return on investment than Gapwaves. However, Modern Times Group is 6.37 times less risky than Gapwaves. It trades about 0.21 of its potential returns per unit of risk. Gapwaves AB Series is currently generating about -0.09 per unit of risk. If you would invest  9,000  in Modern Times Group on September 27, 2024 and sell it today you would earn a total of  450.00  from holding Modern Times Group or generate 5.0% return on investment over 90 days.

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

Modern Times Group  vs.  Gapwaves AB Series

Modern Times Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Modern Times Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Modern Times unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gapwaves AB Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gapwaves AB Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Modern Times and Gapwaves

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

The idea behind Modern Times Group and Gapwaves AB Series 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.