Correlation Between EM and MONA

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

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

Diversification Opportunities for EM and MONA

0.0

Correlation Coefficient

EM  MONA

Pay attention - limited upside

The 3 months correlation between EM and MONA is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and MONA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MONA and EM 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 EM are associated (or correlated) with MONA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MONA has no effect on the direction of EM i.e., EM and MONA go up and down completely randomly.

Pair Corralation between EM and MONA

If you would invest  26.00  in MONA on September 1, 2024 and sell it today you would earn a total of  6.00  from holding MONA or generate 23.08% return on investment over 90 days.

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

EM  vs.  MONA

EM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, EM is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MONA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MONA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, MONA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EM and MONA

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

The idea behind EM and MONA 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.