Correlation Between NYSE Composite and Monarca Minerals

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

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

Diversification Opportunities for NYSE Composite and Monarca Minerals

0.06

Correlation Coefficient

NYSE Composite  Monarca Minerals

Significant diversification

The 3 months correlation between NYSE and Monarca is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Monarca Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monarca Minerals and NYSE Composite 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 NYSE Composite are associated (or correlated) with Monarca Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monarca Minerals has no effect on the direction of NYSE Composite i.e., NYSE Composite and Monarca Minerals go up and down completely randomly.

Pair Corralation between NYSE Composite and Monarca Minerals

Assuming the 90 days trading horizon NYSE Composite is expected to generate 26.79 times less return on investment than Monarca Minerals. But when comparing it to its historical volatility, NYSE Composite is 27.38 times less risky than Monarca Minerals. It trades about 0.12 of its potential returns per unit of risk. Monarca Minerals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.35  in Monarca Minerals on September 13, 2024 and sell it today you would earn a total of  0.17  from holding Monarca Minerals or generate 48.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

NYSE Composite  vs.  Monarca Minerals

Pair Trading with NYSE Composite and Monarca Minerals

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

The idea behind NYSE Composite and Monarca Minerals 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.