Correlation Between Yellow Pages and Madison Pacific

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

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

Diversification Opportunities for Yellow Pages and Madison Pacific

0.54

Correlation Coefficient

Yellow Pages  Madison Pacific

Very weak diversification

The 3 months correlation between Yellow and Madison is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Yellow Pages Limited and Madison Pacific Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Pacific Prop and Yellow Pages 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 Yellow Pages Limited are associated (or correlated) with Madison Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Pacific Prop has no effect on the direction of Yellow Pages i.e., Yellow Pages and Madison Pacific go up and down completely randomly.

Pair Corralation between Yellow Pages and Madison Pacific

Given the investment horizon of 90 days Yellow Pages is expected to generate 1.45 times less return on investment than Madison Pacific. But when comparing it to its historical volatility, Yellow Pages Limited is 2.36 times less risky than Madison Pacific. It trades about 0.18 of its potential returns per unit of risk. Madison Pacific Properties is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  429.00  in Madison Pacific Properties on September 23, 2024 and sell it today you would earn a total of  102.00  from holding Madison Pacific Properties or generate 23.78% return on investment over 90 days.

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

Yellow Pages Limited  vs.  Madison Pacific Properties

Yellow Pages Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yellow Pages Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Yellow Pages displayed solid returns over the last few months and may actually be approaching a breakup point.

Madison Pacific Prop

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Pacific Properties are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Madison Pacific displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yellow Pages and Madison Pacific

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

The idea behind Yellow Pages Limited and Madison Pacific Properties 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.