Correlation Between Metro Investment and Wuxi Lead

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

Diversification Opportunities for Metro Investment and Wuxi Lead

0.61

Correlation Coefficient

Metro Investment  Wuxi Lead

Poor diversification

The 3 months correlation between Metro and Wuxi is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Metro Investment Development and Wuxi Lead Auto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wuxi Lead Auto 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 Wuxi Lead. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wuxi Lead Auto has no effect on the direction of Metro Investment i.e., Metro Investment and Wuxi Lead go up and down completely randomly.

Pair Corralation between Metro Investment and Wuxi Lead

Assuming the 90 days trading horizon Metro Investment Development is expected to under-perform the Wuxi Lead. In addition to that, Metro Investment is 1.01 times more volatile than Wuxi Lead Auto. It trades about -0.08 of its total potential returns per unit of risk. Wuxi Lead Auto is currently generating about 0.05 per unit of volatility. If you would invest  2,293  in Wuxi Lead Auto on December 4, 2024 and sell it today you would earn a total of  126.00  from holding Wuxi Lead Auto or generate 5.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.28%
Values	Daily Returns

Metro Investment Development  vs.  Wuxi Lead Auto

Metro Investment Dev

Risk-Adjusted Performance

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

Wuxi Lead Auto

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wuxi Lead Auto are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Wuxi Lead may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Metro Investment and Wuxi Lead

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

The idea behind Metro Investment Development and Wuxi Lead Auto 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.