Correlation Between Monks Investment and London Stock

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

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

Diversification Opportunities for Monks Investment and London Stock

0.89

Correlation Coefficient

Monks Investment  London Stock

Very poor diversification

The 3 months correlation between Monks and London is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange and Monks Investment 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 Monks Investment Trust are associated (or correlated) with London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Monks Investment i.e., Monks Investment and London Stock go up and down completely randomly.

Pair Corralation between Monks Investment and London Stock

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 0.88 times more return on investment than London Stock. However, Monks Investment Trust is 1.14 times less risky than London Stock. It trades about 0.22 of its potential returns per unit of risk. London Stock Exchange is currently generating about 0.19 per unit of risk. If you would invest  115,600  in Monks Investment Trust on September 20, 2024 and sell it today you would earn a total of  13,000  from holding Monks Investment Trust or generate 11.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Monks Investment Trust  vs.  London Stock Exchange

Monks Investment Trust

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

London Stock Exchange

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monks Investment and London Stock

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

The idea behind Monks Investment Trust and London Stock Exchange 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.