Correlation Between MONA and TRON
Can any of the company-specific risk be diversified away by investing in both MONA and TRON 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 TRON into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MONA and TRON, you can compare the effects of market volatilities on MONA and TRON 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 TRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of MONA and TRON.
Diversification Opportunities for MONA and TRON
Poor diversification
The 3 months correlation between MONA and TRON is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding MONA and TRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRON 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 TRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRON has no effect on the direction of MONA i.e., MONA and TRON go up and down completely randomly.
Pair Corralation between MONA and TRON
Assuming the 90 days trading horizon MONA is expected to under-perform the TRON. In addition to that, MONA is 1.41 times more volatile than TRON. It trades about -0.08 of its total potential returns per unit of risk. TRON is currently generating about 0.01 per unit of volatility. If you would invest 11.00 in TRON on January 17, 2024 and sell it today you would earn a total of 0.00 from holding TRON or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
MONA vs. TRON
Performance |
| Timeline |
| MONA |
| TRON |
MONA and TRON Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MONA and TRON
The main advantage of trading using opposite MONA and TRON positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MONA position performs unexpectedly, TRON 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 TRON will offset losses from the drop in TRON's long position.The idea behind MONA and TRON 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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