Correlation Between Metro Investment and China Great

Can any of the company-specific risk be diversified away by investing in both Metro Investment and China Great 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 China Great 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 China Great Wall, you can compare the effects of market volatilities on Metro Investment and China Great 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 China Great. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Investment and China Great.

Diversification Opportunities for Metro Investment and China Great

0.5

Correlation Coefficient

Metro Investment  China Great

Very weak diversification

The 3 months correlation between Metro and China is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Metro Investment Development and China Great Wall in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Great Wall 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 China Great. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Great Wall has no effect on the direction of Metro Investment i.e., Metro Investment and China Great go up and down completely randomly.

Pair Corralation between Metro Investment and China Great

Assuming the 90 days trading horizon Metro Investment Development is expected to under-perform the China Great. In addition to that, Metro Investment is 2.19 times more volatile than China Great Wall. It trades about -0.2 of its total potential returns per unit of risk. China Great Wall is currently generating about -0.34 per unit of volatility. If you would invest  869.00  in China Great Wall on October 7, 2024 and sell it today you would lose (102.00) from holding China Great Wall or give up 11.74% 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.  China Great Wall

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

China Great Wall

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Great Wall 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Metro Investment and China Great

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

The idea behind Metro Investment Development and China Great Wall 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.