Correlation Between Stone Ridge and M Large

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

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

Diversification Opportunities for Stone Ridge and M Large

0.71

Correlation Coefficient

Stone Ridge  M Large

Poor diversification

The 3 months correlation between Stone and MTCGX is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Stone Ridge Diversified and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap and Stone Ridge 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 Stone Ridge Diversified are associated (or correlated) with M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Stone Ridge i.e., Stone Ridge and M Large go up and down completely randomly.

Pair Corralation between Stone Ridge and M Large

Assuming the 90 days horizon Stone Ridge is expected to generate 1.39 times less return on investment than M Large. But when comparing it to its historical volatility, Stone Ridge Diversified is 3.67 times less risky than M Large. It trades about 0.15 of its potential returns per unit of risk. M Large Cap is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,517  in M Large Cap on September 20, 2024 and sell it today you would earn a total of  129.00  from holding M Large Cap or generate 3.67% return on investment over 90 days.

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

Stone Ridge Diversified  vs.  M Large Cap

Stone Ridge Diversified

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge Diversified are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Stone Ridge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

M Large Cap

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M Large Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, M Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stone Ridge and M Large

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

The idea behind Stone Ridge Diversified and M Large Cap 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.