Correlation Between Mexco Energy and CKX Lands

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

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

Diversification Opportunities for Mexco Energy and CKX Lands

0.39

Correlation Coefficient

Mexco Energy  CKX Lands

Weak diversification

The 3 months correlation between Mexco and CKX is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Mexco Energy and CKX Lands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CKX Lands and Mexco Energy 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 Mexco Energy are associated (or correlated) with CKX Lands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CKX Lands has no effect on the direction of Mexco Energy i.e., Mexco Energy and CKX Lands go up and down completely randomly.

Pair Corralation between Mexco Energy and CKX Lands

Considering the 90-day investment horizon Mexco Energy is expected to generate 1.59 times more return on investment than CKX Lands. However, Mexco Energy is 1.59 times more volatile than CKX Lands. It trades about 0.0 of its potential returns per unit of risk. CKX Lands is currently generating about -0.05 per unit of risk. If you would invest  1,149  in Mexco Energy on September 12, 2024 and sell it today you would lose (23.00) from holding Mexco Energy or give up 2.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	84.13%
Values	Daily Returns

Mexco Energy  vs.  CKX Lands

Mexco Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mexco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Mexco Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

CKX Lands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CKX Lands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, CKX Lands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mexco Energy and CKX Lands

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

The idea behind Mexco Energy and CKX Lands 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.