Can any of the company-specific risk be diversified away by investing in both Alphabet and Medicenna Therapeutics 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 Alphabet and Medicenna Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc CDR and Medicenna Therapeutics Corp, you can compare the effects of market volatilities on Alphabet and Medicenna Therapeutics 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 Alphabet with a short position of Medicenna Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Medicenna Therapeutics.
Diversification Opportunities for Alphabet and Medicenna Therapeutics
The 3 months correlation between Alphabet and Medicenna is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc CDR and Medicenna Therapeutics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medicenna Therapeutics and Alphabet 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 Alphabet Inc CDR are associated (or correlated) with Medicenna Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medicenna Therapeutics has no effect on the direction of Alphabet i.e., Alphabet and Medicenna Therapeutics go up and down completely randomly.
Pair Corralation between Alphabet and Medicenna Therapeutics
Assuming the 90 days trading horizon Alphabet is expected to generate 3.52 times less return on investment than Medicenna Therapeutics. But when comparing it to its historical volatility, Alphabet Inc CDR is 4.95 times less risky than Medicenna Therapeutics. It trades about 0.25 of its potential returns per unit of risk. Medicenna Therapeutics Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 121.00 in Medicenna Therapeutics Corp on March 6, 2024 and sell it today you would earn a total of 136.00 from holding Medicenna Therapeutics Corp or generate 112.4% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc CDR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Medicenna Therapeutics Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Medicenna Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.