Correlation Between MTI Wireless and Spectra Systems

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

By analyzing existing cross correlation between MTI Wireless Edge and Spectra Systems Corp, you can compare the effects of market volatilities on MTI Wireless and Spectra Systems 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 MTI Wireless with a short position of Spectra Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTI Wireless and Spectra Systems.

Diversification Opportunities for MTI Wireless and Spectra Systems

-0.13

Correlation Coefficient

MTI Wireless  Spectra Systems

Good diversification

The 3 months correlation between MTI and Spectra is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding MTI Wireless Edge and Spectra Systems Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectra Systems Corp and MTI Wireless 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 MTI Wireless Edge are associated (or correlated) with Spectra Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectra Systems Corp has no effect on the direction of MTI Wireless i.e., MTI Wireless and Spectra Systems go up and down completely randomly.

Pair Corralation between MTI Wireless and Spectra Systems

Assuming the 90 days trading horizon MTI Wireless Edge is expected to generate 2.12 times more return on investment than Spectra Systems. However, MTI Wireless is 2.12 times more volatile than Spectra Systems Corp. It trades about 0.14 of its potential returns per unit of risk. Spectra Systems Corp is currently generating about -0.04 per unit of risk. If you would invest  4,055  in MTI Wireless Edge on December 30, 2024 and sell it today you would earn a total of  1,270  from holding MTI Wireless Edge or generate 31.32% return on investment over 90 days.

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

MTI Wireless Edge  vs.  Spectra Systems Corp

MTI Wireless Edge

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTI Wireless Edge are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MTI Wireless exhibited solid returns over the last few months and may actually be approaching a breakup point.

Spectra Systems Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spectra Systems Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Spectra Systems is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MTI Wireless and Spectra Systems

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

The idea behind MTI Wireless Edge and Spectra Systems Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.