Correlation Between BOX and MTH

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

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

Diversification Opportunities for BOX and MTH

0.1

Correlation Coefficient

BOX  MTH

Average diversification

The 3 months correlation between BOX and MTH is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding BOX and MTH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTH and BOX 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 BOX are associated (or correlated) with MTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTH has no effect on the direction of BOX i.e., BOX and MTH go up and down completely randomly.

Pair Corralation between BOX and MTH

Assuming the 90 days trading horizon BOX is expected to generate 2.64 times more return on investment than MTH. However, BOX is 2.64 times more volatile than MTH. It trades about 0.09 of its potential returns per unit of risk. MTH is currently generating about 0.17 per unit of risk. If you would invest  0.02  in BOX on September 2, 2024 and sell it today you would earn a total of  0.00  from holding BOX or generate 12.21% return on investment over 90 days.

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

BOX  vs.  MTH

BOX

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BOX are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BOX exhibited solid returns over the last few months and may actually be approaching a breakup point.

MTH

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTH are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical indicators, MTH exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BOX and MTH

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

The idea behind BOX and MTH 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.