Correlation Between RedFlow and Mentor Capital

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

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

Diversification Opportunities for RedFlow and Mentor Capital

-0.46

Correlation Coefficient

RedFlow  Mentor Capital

Very good diversification

The 3 months correlation between RedFlow and Mentor is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding RedFlow Limited and Mentor Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mentor Capital and RedFlow 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 RedFlow Limited are associated (or correlated) with Mentor Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mentor Capital has no effect on the direction of RedFlow i.e., RedFlow and Mentor Capital go up and down completely randomly.

Pair Corralation between RedFlow and Mentor Capital

Assuming the 90 days horizon RedFlow Limited is expected to generate 11.43 times more return on investment than Mentor Capital. However, RedFlow is 11.43 times more volatile than Mentor Capital. It trades about 0.17 of its potential returns per unit of risk. Mentor Capital is currently generating about 0.05 per unit of risk. If you would invest  1.79  in RedFlow Limited on February 2, 2025 and sell it today you would lose (1.69) from holding RedFlow Limited or give up 94.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.09%
Values	Daily Returns

RedFlow Limited  vs.  Mentor Capital

RedFlow Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RedFlow Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, RedFlow reported solid returns over the last few months and may actually be approaching a breakup point.

Mentor Capital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mentor Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Mentor Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RedFlow and Mentor Capital

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

The idea behind RedFlow Limited and Mentor Capital 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.