Correlation Between MetaTech and GrandTech

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

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

Diversification Opportunities for MetaTech and GrandTech

-0.65

Correlation Coefficient

MetaTech  GrandTech

Excellent diversification

The 3 months correlation between MetaTech and GrandTech is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding MetaTech AP and GrandTech CG Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrandTech CG Systems and MetaTech 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 MetaTech AP are associated (or correlated) with GrandTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrandTech CG Systems has no effect on the direction of MetaTech i.e., MetaTech and GrandTech go up and down completely randomly.

Pair Corralation between MetaTech and GrandTech

Assuming the 90 days trading horizon MetaTech AP is expected to generate 1.94 times more return on investment than GrandTech. However, MetaTech is 1.94 times more volatile than GrandTech CG Systems. It trades about 0.03 of its potential returns per unit of risk. GrandTech CG Systems is currently generating about 0.02 per unit of risk. If you would invest  4,000  in MetaTech AP on September 26, 2024 and sell it today you would earn a total of  1,000.00  from holding MetaTech AP or generate 25.0% return on investment over 90 days.

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

MetaTech AP  vs.  GrandTech CG Systems

MetaTech AP

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetaTech AP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, MetaTech is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

GrandTech CG Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GrandTech CG Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with MetaTech and GrandTech

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

The idea behind MetaTech AP and GrandTech CG Systems 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.