Correlation Between MLN and Shrapnel

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

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

Diversification Opportunities for MLN and Shrapnel

0.68

Correlation Coefficient

MLN  Shrapnel

Poor diversification

The 3 months correlation between MLN and Shrapnel is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding MLN and Shrapnel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shrapnel and MLN 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 MLN are associated (or correlated) with Shrapnel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shrapnel has no effect on the direction of MLN i.e., MLN and Shrapnel go up and down completely randomly.

Pair Corralation between MLN and Shrapnel

Assuming the 90 days trading horizon MLN is expected to generate 0.4 times more return on investment than Shrapnel. However, MLN is 2.52 times less risky than Shrapnel. It trades about -0.09 of its potential returns per unit of risk. Shrapnel is currently generating about -0.1 per unit of risk. If you would invest  2,410  in MLN on January 30, 2024 and sell it today you would lose (263.00) from holding MLN or give up 10.91% of portfolio value over 90 days.

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

MLN  vs.  Shrapnel

MLN

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MLN are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MLN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MLN and Shrapnel

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

The idea behind MLN and Shrapnel 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.