Correlation Between ULT and MCO
Can any of the company-specific risk be diversified away by investing in both ULT and MCO 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 ULT and MCO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ULT and MCO, you can compare the effects of market volatilities on ULT and MCO 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 ULT with a short position of MCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of ULT and MCO.
Diversification Opportunities for ULT and MCO
Good diversification
The 3 months correlation between ULT and MCO is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding ULT and MCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCO and ULT 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 ULT are associated (or correlated) with MCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCO has no effect on the direction of ULT i.e., ULT and MCO go up and down completely randomly.
Pair Corralation between ULT and MCO
If you would invest 85.00 in MCO on January 20, 2024 and sell it today you would earn a total of 1,240 from holding MCO or generate 1458.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 4.55% |
| Values | Daily Returns |
ULT vs. MCO
Performance |
| Timeline |
| ULT |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| MCO |
ULT and MCO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ULT and MCO
The main advantage of trading using opposite ULT and MCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ULT position performs unexpectedly, MCO 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 MCO will offset losses from the drop in MCO's long position.The idea behind ULT and MCO 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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