Correlation Between Target and MGC Pharmaceuticals

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

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

Diversification Opportunities for Target and MGC Pharmaceuticals

0.5

Correlation Coefficient

Target  MGC Pharmaceuticals

Very weak diversification

The 3 months correlation between Target and MGC is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Target Group and MGC Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGC Pharmaceuticals and Target 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 Target Group are associated (or correlated) with MGC Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGC Pharmaceuticals has no effect on the direction of Target i.e., Target and MGC Pharmaceuticals go up and down completely randomly.

Pair Corralation between Target and MGC Pharmaceuticals

Given the investment horizon of 90 days Target is expected to generate 1.27 times less return on investment than MGC Pharmaceuticals. But when comparing it to its historical volatility, Target Group is 2.34 times less risky than MGC Pharmaceuticals. It trades about 0.09 of its potential returns per unit of risk. MGC Pharmaceuticals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.00  in MGC Pharmaceuticals on September 14, 2024 and sell it today you would earn a total of  20.00  from holding MGC Pharmaceuticals or generate 2000.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	78.14%
Values	Daily Returns

Target Group  vs.  MGC Pharmaceuticals

Target Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Target Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Target showed solid returns over the last few months and may actually be approaching a breakup point.

MGC Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGC Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, MGC Pharmaceuticals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Target and MGC Pharmaceuticals

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

The idea behind Target Group and MGC Pharmaceuticals 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.