Can any of the company-specific risk be diversified away by investing in both Rafael Holdings and MongoDB 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 Rafael Holdings and MongoDB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rafael Holdings Class and MongoDB, you can compare the effects of market volatilities on Rafael Holdings and MongoDB 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 Rafael Holdings with a short position of MongoDB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rafael Holdings and MongoDB.
Diversification Opportunities for Rafael Holdings and MongoDB
The 3 months correlation between Rafael and MongoDB is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Rafael Holdings Class and MongoDB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MongoDB and Rafael Holdings 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 Rafael Holdings Class are associated (or correlated) with MongoDB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MongoDB has no effect on the direction of Rafael Holdings i.e., Rafael Holdings and MongoDB go up and down completely randomly.
Pair Corralation between Rafael Holdings and MongoDB
Considering the 90-day investment horizon Rafael Holdings Class is expected to generate 0.61 times more return on investment than MongoDB. However, Rafael Holdings Class is 1.65 times less risky than MongoDB. It trades about -0.23 of its potential returns per unit of risk. MongoDB is currently generating about -0.16 per unit of risk. If you would invest 224.00 in Rafael Holdings Class on June 24, 2023 and sell it today you would lose (17.00) from holding Rafael Holdings Class or give up 7.59% of portfolio value over 90 days.
Over the last 90 days Rafael Holdings Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Rafael Holdings is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Over the last 90 days MongoDB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
The main advantage of trading using opposite Rafael Holdings and MongoDB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rafael Holdings position performs unexpectedly, MongoDB 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 MongoDB will offset losses from the drop in MongoDB's long position.
The idea behind Rafael Holdings Class and MongoDB 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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