Correlation Between MT Bank and London Security

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

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

Diversification Opportunities for MT Bank and London Security

-0.8

Correlation Coefficient

MT Bank  London Security

Pay attention - limited upside

The 3 months correlation between 0JW2 and London is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding MT Bank Corp and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and MT Bank 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 MT Bank Corp are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of MT Bank i.e., MT Bank and London Security go up and down completely randomly.

Pair Corralation between MT Bank and London Security

Assuming the 90 days trading horizon MT Bank Corp is expected to generate 1.41 times more return on investment than London Security. However, MT Bank is 1.41 times more volatile than London Security Plc. It trades about 0.17 of its potential returns per unit of risk. London Security Plc is currently generating about -0.09 per unit of risk. If you would invest  16,680  in MT Bank Corp on September 13, 2024 and sell it today you would earn a total of  3,683  from holding MT Bank Corp or generate 22.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

MT Bank Corp  vs.  London Security Plc

MT Bank Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MT Bank Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MT Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with MT Bank and London Security

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

The idea behind MT Bank Corp and London Security Plc 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.