Correlation Between MGP Ingredients and Canoo

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

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

Diversification Opportunities for MGP Ingredients and Canoo

0.39

Correlation Coefficient

MGP Ingredients  Canoo

Weak diversification

The 3 months correlation between MGP and Canoo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding MGP Ingredients and Canoo Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canoo Inc and MGP Ingredients 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 MGP Ingredients are associated (or correlated) with Canoo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canoo Inc has no effect on the direction of MGP Ingredients i.e., MGP Ingredients and Canoo go up and down completely randomly.

Pair Corralation between MGP Ingredients and Canoo

Given the investment horizon of 90 days MGP Ingredients is expected to generate 0.15 times more return on investment than Canoo. However, MGP Ingredients is 6.55 times less risky than Canoo. It trades about -0.13 of its potential returns per unit of risk. Canoo Inc is currently generating about -0.09 per unit of risk. If you would invest  8,219  in MGP Ingredients on January 25, 2024 and sell it today you would lose (429.00) from holding MGP Ingredients or give up 5.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MGP Ingredients  vs.  Canoo Inc

MGP Ingredients

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGP Ingredients has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Canoo Inc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canoo Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Canoo showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MGP Ingredients and Canoo

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

The idea behind MGP Ingredients and Canoo Inc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.