Correlation Between ITC and MWAT

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

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

Diversification Opportunities for ITC and MWAT

1.0

Correlation Coefficient

ITC  MWAT

No risk reduction

The 3 months correlation between ITC and MWAT is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding ITC and MWAT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MWAT and ITC 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 ITC are associated (or correlated) with MWAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MWAT has no effect on the direction of ITC i.e., ITC and MWAT go up and down completely randomly.

Pair Corralation between ITC and MWAT

If you would invest  0.43  in MWAT on February 6, 2024 and sell it today you would earn a total of  0.00  from holding MWAT or generate 0.0% return on investment over 90 days.

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

ITC  vs.  MWAT

ITC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ITC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MWAT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MWAT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, MWAT is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ITC and MWAT

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

The idea behind ITC and MWAT 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.