Correlation Between MONA and WAB

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

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

Diversification Opportunities for MONA and WAB

0.28

Correlation Coefficient

MONA  WAB

Modest diversification

The 3 months correlation between MONA and WAB is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding MONA and WAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WAB and MONA 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 MONA are associated (or correlated) with WAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WAB has no effect on the direction of MONA i.e., MONA and WAB go up and down completely randomly.

Pair Corralation between MONA and WAB

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	Moves Together
Strength	Very Weak
Accuracy	1.54%
Values	Daily Returns

MONA  vs.  WAB

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.

WAB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with MONA and WAB

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

The idea behind MONA and WAB 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.

Check out your portfolio center.

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.