Correlation Between 6 Meridian and Overlay Shares

Can any of the company-specific risk be diversified away by investing in both 6 Meridian and Overlay Shares 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 6 Meridian and Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 6 Meridian Small and Overlay Shares Large, you can compare the effects of market volatilities on 6 Meridian and Overlay Shares 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 6 Meridian with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of 6 Meridian and Overlay Shares.

Diversification Opportunities for 6 Meridian and Overlay Shares

0.75

Correlation Coefficient

6 Meridian  Overlay Shares

Poor diversification

The 3 months correlation between SIXS and Overlay is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding 6 Meridian Small and Overlay Shares Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Large and 6 Meridian 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 6 Meridian Small are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Large has no effect on the direction of 6 Meridian i.e., 6 Meridian and Overlay Shares go up and down completely randomly.

Pair Corralation between 6 Meridian and Overlay Shares

Given the investment horizon of 90 days 6 Meridian is expected to generate 2.47 times less return on investment than Overlay Shares. But when comparing it to its historical volatility, 6 Meridian Small is 1.13 times less risky than Overlay Shares. It trades about 0.1 of its potential returns per unit of risk. Overlay Shares Large is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,071  in Overlay Shares Large on September 2, 2024 and sell it today you would earn a total of  783.00  from holding Overlay Shares Large or generate 19.23% return on investment over 90 days.

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

6 Meridian Small  vs.  Overlay Shares Large

6 Meridian Small

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 6 Meridian Small are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, 6 Meridian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Overlay Shares Large

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Large are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Overlay Shares disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 6 Meridian and Overlay Shares

The main advantage of trading using opposite 6 Meridian and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 6 Meridian position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.

The idea behind 6 Meridian Small and Overlay Shares Large 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.