Correlation Between NEO and MONA

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

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

Diversification Opportunities for NEO and MONA

0.39

Correlation Coefficient

NEO  MONA

Weak diversification

The 3 months correlation between NEO and MONA is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding NEO and MONA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MONA and NEO 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 NEO 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 NEO i.e., NEO and MONA go up and down completely randomly.

Pair Corralation between NEO and MONA

Assuming the 90 days trading horizon NEO is expected to generate 2.13 times more return on investment than MONA. However, NEO is 2.13 times more volatile than MONA. It trades about 0.16 of its potential returns per unit of risk. MONA is currently generating about -0.11 per unit of risk. If you would invest  1,444  in NEO on January 30, 2024 and sell it today you would earn a total of  337.00  from holding NEO or generate 23.34% return on investment over 90 days.

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

NEO  vs.  MONA

NEO

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEO are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NEO exhibited solid returns over the last few months and may actually be approaching a breakup point.

MONA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NEO and MONA

The main advantage of trading using opposite NEO and MONA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NEO 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 NEO 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.