Correlation Between ULT and MONA
Can any of the company-specific risk be diversified away by investing in both ULT and MONA 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 ULT and MONA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ULT and MONA, you can compare the effects of market volatilities on ULT and MONA 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 ULT with a short position of MONA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ULT and MONA.
Diversification Opportunities for ULT and MONA
Excellent diversification
The 3 months correlation between ULT and MONA is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding ULT and MONA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MONA and ULT 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 ULT are associated (or correlated) with MONA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MONA has no effect on the direction of ULT i.e., ULT and MONA go up and down completely randomly.
Pair Corralation between ULT and MONA
Assuming the 90 days trading horizon ULT is expected to generate 0.59 times more return on investment than MONA. However, ULT is 1.69 times less risky than MONA. It trades about 0.06 of its potential returns per unit of risk. MONA is currently generating about 0.01 per unit of risk. If you would invest 0.32 in ULT on January 19, 2024 and sell it today you would earn a total of 0.12 from holding ULT or generate 37.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 64.22% |
| Values | Daily Returns |
ULT vs. MONA
Performance |
| Timeline |
| ULT |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| MONA |
ULT and MONA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ULT and MONA
The main advantage of trading using opposite ULT and MONA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ULT position performs unexpectedly, MONA 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 MONA will offset losses from the drop in MONA's long position.The idea behind ULT and MONA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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