Correlation Between MWAT and ITC
Can any of the company-specific risk be diversified away by investing in both MWAT and ITC 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 MWAT and ITC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MWAT and ITC, you can compare the effects of market volatilities on MWAT and ITC 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 MWAT with a short position of ITC. Check out your portfolio center. Please also check ongoing floating volatility patterns of MWAT and ITC.
Diversification Opportunities for MWAT and ITC
No risk reduction
The 3 months correlation between MWAT and ITC is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding MWAT and ITC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITC and MWAT 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 MWAT are associated (or correlated) with ITC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITC has no effect on the direction of MWAT i.e., MWAT and ITC go up and down completely randomly.
Pair Corralation between MWAT and ITC
Assuming the 90 days trading horizon MWAT is expected to generate 2.25 times less return on investment than ITC. But when comparing it to its historical volatility, MWAT is 1.12 times less risky than ITC. It trades about 0.01 of its potential returns per unit of risk. ITC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1.06 in ITC on February 7, 2024 and sell it today you would lose (0.08) from holding ITC or give up 7.3% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
MWAT vs. ITC
Performance |
Timeline |
MWAT |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
ITC |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
MWAT and ITC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MWAT and ITC
The main advantage of trading using opposite MWAT and ITC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MWAT position performs unexpectedly, ITC 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 ITC will offset losses from the drop in ITC's long position.The idea behind MWAT and ITC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital | |
Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
Stock Tickers Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites |