Correlation Between Multicorp Intl and FullNet Communications

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

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

Diversification Opportunities for Multicorp Intl and FullNet Communications

0.21

Correlation Coefficient

Multicorp Intl  FullNet Communications

Modest diversification

The 3 months correlation between Multicorp and FullNet is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Multicorp Intl and FullNet Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FullNet Communications and Multicorp Intl 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 Multicorp Intl are associated (or correlated) with FullNet Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FullNet Communications has no effect on the direction of Multicorp Intl i.e., Multicorp Intl and FullNet Communications go up and down completely randomly.

Pair Corralation between Multicorp Intl and FullNet Communications

Given the investment horizon of 90 days Multicorp Intl is expected to generate 2.32 times less return on investment than FullNet Communications. But when comparing it to its historical volatility, Multicorp Intl is 1.43 times less risky than FullNet Communications. It trades about 0.04 of its potential returns per unit of risk. FullNet Communications is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  42.00  in FullNet Communications on January 24, 2024 and sell it today you would lose (17.00) from holding FullNet Communications or give up 40.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	79.51%
Values	Daily Returns

Multicorp Intl  vs.  FullNet Communications

Multicorp Intl

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multicorp Intl has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Multicorp Intl is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

FullNet Communications

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days FullNet Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain essential indicators, FullNet Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Multicorp Intl and FullNet Communications

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

The idea behind Multicorp Intl and FullNet Communications 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.