Correlation Between Sydbank and Metro Bank

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

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

Diversification Opportunities for Sydbank and Metro Bank

0.74

Correlation Coefficient

Sydbank  Metro Bank

Poor diversification

The 3 months correlation between Sydbank and Metro is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sydbank and Metro Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Bank PLC and Sydbank 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 Sydbank are associated (or correlated) with Metro Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Bank PLC has no effect on the direction of Sydbank i.e., Sydbank and Metro Bank go up and down completely randomly.

Pair Corralation between Sydbank and Metro Bank

Assuming the 90 days trading horizon Sydbank is expected to generate 1.99 times less return on investment than Metro Bank. But when comparing it to its historical volatility, Sydbank is 1.86 times less risky than Metro Bank. It trades about 0.16 of its potential returns per unit of risk. Metro Bank PLC is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  6,840  in Metro Bank PLC on October 10, 2024 and sell it today you would earn a total of  2,560  from holding Metro Bank PLC or generate 37.43% return on investment over 90 days.

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

Sydbank  vs.  Metro Bank PLC

Sydbank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sydbank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sydbank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Metro Bank PLC

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Sydbank and Metro Bank

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

The idea behind Sydbank and Metro Bank 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.