Correlation Between Metro Investment and Lier Chemical

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

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

Diversification Opportunities for Metro Investment and Lier Chemical

0.54

Correlation Coefficient

Metro Investment  Lier Chemical

Very weak diversification

The 3 months correlation between Metro and Lier is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Metro Investment Development and Lier Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lier Chemical and Metro Investment 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 Metro Investment Development are associated (or correlated) with Lier Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lier Chemical has no effect on the direction of Metro Investment i.e., Metro Investment and Lier Chemical go up and down completely randomly.

Pair Corralation between Metro Investment and Lier Chemical

Assuming the 90 days trading horizon Metro Investment Development is expected to generate 1.91 times more return on investment than Lier Chemical. However, Metro Investment is 1.91 times more volatile than Lier Chemical Co. It trades about 0.01 of its potential returns per unit of risk. Lier Chemical Co is currently generating about -0.08 per unit of risk. If you would invest  470.00  in Metro Investment Development on September 29, 2024 and sell it today you would lose (76.00) from holding Metro Investment Development or give up 16.17% of portfolio value over 90 days.

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

Metro Investment Development  vs.  Lier Chemical Co

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.

Lier Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Metro Investment and Lier Chemical

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

The idea behind Metro Investment Development and Lier Chemical Co 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.