Correlation Between M3 and Newtopia

Can any of the company-specific risk be diversified away by investing in both M3 and Newtopia 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 M3 and Newtopia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M3 Inc and Newtopia, you can compare the effects of market volatilities on M3 and Newtopia 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 M3 with a short position of Newtopia. Check out your portfolio center. Please also check ongoing floating volatility patterns of M3 and Newtopia.

Diversification Opportunities for M3 and Newtopia

-0.22

Correlation Coefficient

M3  Newtopia

Very good diversification

The 3 months correlation between M3 and Newtopia is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding M3 Inc and Newtopia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtopia and M3 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 M3 Inc are associated (or correlated) with Newtopia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtopia has no effect on the direction of M3 i.e., M3 and Newtopia go up and down completely randomly.

Pair Corralation between M3 and Newtopia

Assuming the 90 days horizon M3 Inc is expected to generate 0.21 times more return on investment than Newtopia. However, M3 Inc is 4.7 times less risky than Newtopia. It trades about -0.01 of its potential returns per unit of risk. Newtopia is currently generating about -0.02 per unit of risk. If you would invest  700.00  in M3 Inc on December 2, 2024 and sell it today you would lose (112.00) from holding M3 Inc or give up 16.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.02%
Values	Daily Returns

M3 Inc  vs.  Newtopia

M3 Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M3 Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, M3 showed solid returns over the last few months and may actually be approaching a breakup point.

Newtopia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Newtopia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Newtopia is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with M3 and Newtopia

The main advantage of trading using opposite M3 and Newtopia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M3 position performs unexpectedly, Newtopia 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 Newtopia will offset losses from the drop in Newtopia's long position.

The idea behind M3 Inc and Newtopia 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .