Correlation Between Mega Financial and IBASE Technology

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

By analyzing existing cross correlation between Mega Financial Holding and IBASE Technology, you can compare the effects of market volatilities on Mega Financial and IBASE Technology 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 Mega Financial with a short position of IBASE Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Financial and IBASE Technology.

Diversification Opportunities for Mega Financial and IBASE Technology

-0.46

Correlation Coefficient

Mega Financial  IBASE Technology

Very good diversification

The 3 months correlation between Mega and IBASE is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Mega Financial Holding and IBASE Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBASE Technology and Mega Financial 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 Mega Financial Holding are associated (or correlated) with IBASE Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBASE Technology has no effect on the direction of Mega Financial i.e., Mega Financial and IBASE Technology go up and down completely randomly.

Pair Corralation between Mega Financial and IBASE Technology

Assuming the 90 days trading horizon Mega Financial Holding is expected to generate 0.73 times more return on investment than IBASE Technology. However, Mega Financial Holding is 1.37 times less risky than IBASE Technology. It trades about -0.02 of its potential returns per unit of risk. IBASE Technology is currently generating about -0.02 per unit of risk. If you would invest  3,930  in Mega Financial Holding on September 30, 2024 and sell it today you would lose (45.00) from holding Mega Financial Holding or give up 1.15% of portfolio value over 90 days.

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

Mega Financial Holding  vs.  IBASE Technology

Mega Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mega Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Mega Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

IBASE Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBASE Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IBASE Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Mega Financial and IBASE Technology

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

The idea behind Mega Financial Holding and IBASE Technology 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..