Correlation Between Madison Investors and Meridian Trarian

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

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

Diversification Opportunities for Madison Investors and Meridian Trarian

0.96

Correlation Coefficient

Madison Investors  Meridian Trarian

Almost no diversification

The 3 months correlation between Madison and Meridian is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Madison Investors Fund and Meridian Trarian Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Trarian and Madison Investors 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 Madison Investors Fund are associated (or correlated) with Meridian Trarian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Trarian has no effect on the direction of Madison Investors i.e., Madison Investors and Meridian Trarian go up and down completely randomly.

Pair Corralation between Madison Investors and Meridian Trarian

Assuming the 90 days horizon Madison Investors is expected to generate 1.64 times less return on investment than Meridian Trarian. But when comparing it to its historical volatility, Madison Investors Fund is 1.19 times less risky than Meridian Trarian. It trades about 0.14 of its potential returns per unit of risk. Meridian Trarian Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,758  in Meridian Trarian Fund on September 12, 2024 and sell it today you would earn a total of  428.00  from holding Meridian Trarian Fund or generate 11.39% return on investment over 90 days.

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

Madison Investors Fund  vs.  Meridian Trarian Fund

Madison Investors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Investors Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Madison Investors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Meridian Trarian

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Trarian Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Meridian Trarian may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Madison Investors and Meridian Trarian

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

The idea behind Madison Investors Fund and Meridian Trarian Fund 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.