Correlation Between Aerospace and Metro Investment

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

By analyzing existing cross correlation between Aerospace Hi Tech Holding and Metro Investment Development, you can compare the effects of market volatilities on Aerospace and Metro Investment 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 Aerospace with a short position of Metro Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerospace and Metro Investment.

Diversification Opportunities for Aerospace and Metro Investment

0.45

Correlation Coefficient

Aerospace  Metro Investment

Very weak diversification

The 3 months correlation between Aerospace and Metro is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Aerospace Hi Tech Holding and Metro Investment Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Investment Dev and Aerospace 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 Aerospace Hi Tech Holding are associated (or correlated) with Metro Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Investment Dev has no effect on the direction of Aerospace i.e., Aerospace and Metro Investment go up and down completely randomly.

Pair Corralation between Aerospace and Metro Investment

Assuming the 90 days trading horizon Aerospace Hi Tech Holding is expected to generate 1.16 times more return on investment than Metro Investment. However, Aerospace is 1.16 times more volatile than Metro Investment Development. It trades about 0.02 of its potential returns per unit of risk. Metro Investment Development is currently generating about -0.13 per unit of risk. If you would invest  1,136  in Aerospace Hi Tech Holding on September 28, 2024 and sell it today you would earn a total of  3.00  from holding Aerospace Hi Tech Holding or generate 0.26% return on investment over 90 days.

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

Aerospace Hi Tech Holding  vs.  Metro Investment Development

Aerospace Hi Tech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aerospace Hi Tech Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Aerospace is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Metro Investment Dev

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro Investment Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Aerospace and Metro Investment

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

The idea behind Aerospace Hi Tech Holding and Metro Investment Development 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.