Correlation Between MetaLabs and Microfriend

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

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

Diversification Opportunities for MetaLabs and Microfriend

-0.21

Correlation Coefficient

MetaLabs  Microfriend

Very good diversification

The 3 months correlation between MetaLabs and Microfriend is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding MetaLabs Co and Microfriend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microfriend and MetaLabs 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 MetaLabs Co are associated (or correlated) with Microfriend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microfriend has no effect on the direction of MetaLabs i.e., MetaLabs and Microfriend go up and down completely randomly.

Pair Corralation between MetaLabs and Microfriend

Assuming the 90 days trading horizon MetaLabs Co is expected to generate 0.56 times more return on investment than Microfriend. However, MetaLabs Co is 1.78 times less risky than Microfriend. It trades about 0.12 of its potential returns per unit of risk. Microfriend is currently generating about -0.02 per unit of risk. If you would invest  130,800  in MetaLabs Co on December 28, 2024 and sell it today you would earn a total of  16,100  from holding MetaLabs Co or generate 12.31% return on investment over 90 days.

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

MetaLabs Co  vs.  Microfriend

MetaLabs

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MetaLabs Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MetaLabs sustained solid returns over the last few months and may actually be approaching a breakup point.

Microfriend

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microfriend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Microfriend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MetaLabs and Microfriend

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

The idea behind MetaLabs Co and Microfriend 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.