Correlation Between Flare and MNW

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

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

Diversification Opportunities for Flare and MNW

0.36

Correlation Coefficient

Flare  MNW

Weak diversification

The 3 months correlation between Flare and MNW is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Flare and MNW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MNW and Flare 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 Flare are associated (or correlated) with MNW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MNW has no effect on the direction of Flare i.e., Flare and MNW go up and down completely randomly.

Pair Corralation between Flare and MNW

Assuming the 90 days trading horizon Flare is expected to generate 22.32 times less return on investment than MNW. But when comparing it to its historical volatility, Flare is 16.02 times less risky than MNW. It trades about 0.08 of its potential returns per unit of risk. MNW is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  47.00  in MNW on August 23, 2024 and sell it today you would lose (14.00) from holding MNW or give up 29.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Flare  vs.  MNW

Flare

Risk-Adjusted Performance

6 of 100

Modest

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

MNW

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MNW are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MNW exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flare and MNW

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

The idea behind Flare and MNW 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.