Correlation Between MUA and LUX ISLAND

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

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

Diversification Opportunities for MUA and LUX ISLAND

0.2

Correlation Coefficient

MUA  LUX ISLAND

Modest diversification

The 3 months correlation between MUA and LUX is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding MUA LTD and LUX ISLAND RESORTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LUX ISLAND RESORTS and MUA 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 MUA LTD are associated (or correlated) with LUX ISLAND. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LUX ISLAND RESORTS has no effect on the direction of MUA i.e., MUA and LUX ISLAND go up and down completely randomly.

Pair Corralation between MUA and LUX ISLAND

Assuming the 90 days trading horizon MUA LTD is expected to under-perform the LUX ISLAND. In addition to that, MUA is 2.37 times more volatile than LUX ISLAND RESORTS. It trades about -0.14 of its total potential returns per unit of risk. LUX ISLAND RESORTS is currently generating about -0.02 per unit of volatility. If you would invest  5,600  in LUX ISLAND RESORTS on October 26, 2024 and sell it today you would lose (100.00) from holding LUX ISLAND RESORTS or give up 1.79% of portfolio value over 90 days.

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

MUA LTD  vs.  LUX ISLAND RESORTS

MUA LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MUA LTD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

LUX ISLAND RESORTS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LUX ISLAND RESORTS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, LUX ISLAND is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MUA and LUX ISLAND

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

The idea behind MUA LTD and LUX ISLAND RESORTS 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.