Correlation Between Red Pine and Monarch Cement

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

By analyzing existing cross correlation between Red Pine Exploration and The Monarch Cement, you can compare the effects of market volatilities on Red Pine and Monarch Cement 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 Red Pine with a short position of Monarch Cement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Pine and Monarch Cement.

Diversification Opportunities for Red Pine and Monarch Cement

-0.75

Correlation Coefficient

Red Pine  Monarch Cement

Pay attention - limited upside

The 3 months correlation between Red and Monarch is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Red Pine Exploration and The Monarch Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monarch Cement and Red Pine 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 Red Pine Exploration are associated (or correlated) with Monarch Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monarch Cement has no effect on the direction of Red Pine i.e., Red Pine and Monarch Cement go up and down completely randomly.

Pair Corralation between Red Pine and Monarch Cement

Assuming the 90 days horizon Red Pine is expected to generate 4.96 times less return on investment than Monarch Cement. In addition to that, Red Pine is 3.9 times more volatile than The Monarch Cement. It trades about 0.01 of its total potential returns per unit of risk. The Monarch Cement is currently generating about 0.11 per unit of volatility. If you would invest  10,251  in The Monarch Cement on September 26, 2024 and sell it today you would earn a total of  11,449  from holding The Monarch Cement or generate 111.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	84.91%
Values	Daily Returns

Red Pine Exploration  vs.  The Monarch Cement

Red Pine Exploration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Pine Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Monarch Cement

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Red Pine and Monarch Cement

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

The idea behind Red Pine Exploration and The Monarch Cement 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.