Correlation Between MONA and MWAT

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

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

Diversification Opportunities for MONA and MWAT

0.13

Correlation Coefficient

MONA  MWAT

Average diversification

The 3 months correlation between MONA and MWAT is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding MONA and MWAT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MWAT 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 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 MONA i.e., MONA and MWAT go up and down completely randomly.

Pair Corralation between MONA and MWAT

Assuming the 90 days trading horizon MONA is expected to generate 1.69 times more return on investment than MWAT. However, MONA is 1.69 times more volatile than MWAT. It trades about -0.02 of its potential returns per unit of risk. MWAT is currently generating about -0.13 per unit of risk. If you would invest  44.00  in MONA on February 7, 2024 and sell it today you would lose (10.00) from holding MONA or give up 22.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	17.19%
Values	Daily Returns

MONA  vs.  MWAT

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.

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 MONA and MWAT

The main advantage of trading using opposite MONA and MWAT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MONA 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 MONA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..