Correlation Between MONA and MLN

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

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

Diversification Opportunities for MONA and MLN

0.57

Correlation Coefficient

MONA  MLN

Very weak diversification

The 3 months correlation between MONA and MLN is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding MONA and MLN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MLN and MONA 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 MONA are associated (or correlated) with MLN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MLN has no effect on the direction of MONA i.e., MONA and MLN go up and down completely randomly.

Pair Corralation between MONA and MLN

Assuming the 90 days trading horizon MONA is expected to generate 0.66 times more return on investment than MLN. However, MONA is 1.5 times less risky than MLN. It trades about -0.19 of its potential returns per unit of risk. MLN is currently generating about -0.15 per unit of risk. If you would invest  39.00  in MONA on February 7, 2024 and sell it today you would lose (5.00) from holding MONA or give up 12.82% of portfolio value over 90 days.

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

MONA  vs.  MLN

MONA

Risk-Adjusted Performance

0 of 100

Very Weak

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

MLN

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MLN are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MLN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MONA and MLN

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

The idea behind MONA and MLN 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.