Correlation Between Puma Exploration and Monarch Cement

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

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

Diversification Opportunities for Puma Exploration and Monarch Cement

0.24

Correlation Coefficient

Puma Exploration  Monarch Cement

Modest diversification

The 3 months correlation between Puma and Monarch is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Puma Exploration and The Monarch Cement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monarch Cement and Puma Exploration 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 Puma Exploration are associated (or correlated) with Monarch Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monarch Cement has no effect on the direction of Puma Exploration i.e., Puma Exploration and Monarch Cement go up and down completely randomly.

Pair Corralation between Puma Exploration and Monarch Cement

Assuming the 90 days horizon Puma Exploration is expected to generate 4.43 times more return on investment than Monarch Cement. However, Puma Exploration is 4.43 times more volatile than The Monarch Cement. It trades about 0.04 of its potential returns per unit of risk. The Monarch Cement is currently generating about 0.14 per unit of risk. If you would invest  5.00  in Puma Exploration on September 26, 2024 and sell it today you would earn a total of  0.00  from holding Puma Exploration or generate 0.0% return on investment over 90 days.

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

Puma Exploration  vs.  The Monarch Cement

Puma Exploration

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Puma Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Puma Exploration reported solid returns over the last few months and may actually be approaching a breakup point.

Monarch Cement

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Puma Exploration and Monarch Cement

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

The idea behind Puma Exploration and The Monarch Cement 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.