Correlation Between Applied Finance and M Large

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

By analyzing existing cross correlation between Applied Finance Explorer and M Large Cap, you can compare the effects of market volatilities on Applied Finance and M Large 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 Applied Finance with a short position of M Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and M Large.

Diversification Opportunities for Applied Finance and M Large

0.61

Correlation Coefficient

Applied Finance  M Large

Poor diversification

The 3 months correlation between Applied and MTCGX is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap and Applied Finance 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 Applied Finance Explorer are associated (or correlated) with M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Applied Finance i.e., Applied Finance and M Large go up and down completely randomly.

Pair Corralation between Applied Finance and M Large

Assuming the 90 days horizon Applied Finance Explorer is expected to under-perform the M Large. In addition to that, Applied Finance is 1.09 times more volatile than M Large Cap. It trades about -0.04 of its total potential returns per unit of risk. M Large Cap is currently generating about 0.08 per unit of volatility. If you would invest  3,548  in M Large Cap on September 25, 2024 and sell it today you would earn a total of  177.00  from holding M Large Cap or generate 4.99% return on investment over 90 days.

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

Applied Finance Explorer  vs.  M Large Cap

Applied Finance Explorer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Finance Explorer has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Applied Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

M Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, M Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Finance and M Large

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

The idea behind Applied Finance Explorer and M Large Cap 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.