Correlation Between MST Investment and CMC Investment

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

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

Diversification Opportunities for MST Investment and CMC Investment

-0.58

Correlation Coefficient

MST Investment  CMC Investment

Excellent diversification

The 3 months correlation between MST and CMC is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding MST Investment JSC and CMC Investment JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMC Investment JSC and MST 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 MST Investment JSC are associated (or correlated) with CMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMC Investment JSC has no effect on the direction of MST Investment i.e., MST Investment and CMC Investment go up and down completely randomly.

Pair Corralation between MST Investment and CMC Investment

Assuming the 90 days trading horizon MST Investment JSC is expected to generate 0.56 times more return on investment than CMC Investment. However, MST Investment JSC is 1.78 times less risky than CMC Investment. It trades about 0.15 of its potential returns per unit of risk. CMC Investment JSC is currently generating about -0.05 per unit of risk. If you would invest  550,000  in MST Investment JSC on September 29, 2024 and sell it today you would earn a total of  140,000  from holding MST Investment JSC or generate 25.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	60.0%
Values	Daily Returns

MST Investment JSC  vs.  CMC Investment JSC

MST Investment JSC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MST Investment JSC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, MST Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

CMC Investment JSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CMC Investment JSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with MST Investment and CMC Investment

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

The idea behind MST Investment JSC and CMC Investment JSC 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 Transaction History module to view history of all your transactions and understand their impact on performance.