Correlation Between Paccar and MTI Wireless

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

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

Diversification Opportunities for Paccar and MTI Wireless

-0.6

Correlation Coefficient

Paccar  MTI Wireless

Excellent diversification

The 3 months correlation between Paccar and MTI is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Paccar Inc and MTI Wireless Edge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTI Wireless Edge and Paccar 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 Paccar Inc are associated (or correlated) with MTI Wireless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTI Wireless Edge has no effect on the direction of Paccar i.e., Paccar and MTI Wireless go up and down completely randomly.

Pair Corralation between Paccar and MTI Wireless

Assuming the 90 days trading horizon Paccar Inc is expected to under-perform the MTI Wireless. But the stock apears to be less risky and, when comparing its historical volatility, Paccar Inc is 1.02 times less risky than MTI Wireless. The stock trades about -0.33 of its potential returns per unit of risk. The MTI Wireless Edge is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  4,500  in MTI Wireless Edge on September 25, 2024 and sell it today you would lose (200.00) from holding MTI Wireless Edge or give up 4.44% of portfolio value over 90 days.

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

Paccar Inc  vs.  MTI Wireless Edge

Paccar Inc

Risk-Adjusted Performance

6 of 100

Modest

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

MTI Wireless Edge

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTI Wireless Edge has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Paccar and MTI Wireless

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

The idea behind Paccar Inc and MTI Wireless Edge 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.