Correlation Between Metro AG and Chongqing Machinery

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

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

Diversification Opportunities for Metro AG and Chongqing Machinery

-0.38

Correlation Coefficient

Metro AG  Chongqing Machinery

Very good diversification

The 3 months correlation between Metro and Chongqing is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Metro AG and Chongqing Machinery Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Machinery and Metro AG 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 AG are associated (or correlated) with Chongqing Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Machinery has no effect on the direction of Metro AG i.e., Metro AG and Chongqing Machinery go up and down completely randomly.

Pair Corralation between Metro AG and Chongqing Machinery

Assuming the 90 days trading horizon Metro AG is expected to generate 8.1 times less return on investment than Chongqing Machinery. In addition to that, Metro AG is 1.61 times more volatile than Chongqing Machinery Electric. It trades about 0.01 of its total potential returns per unit of risk. Chongqing Machinery Electric is currently generating about 0.08 per unit of volatility. If you would invest  7.60  in Chongqing Machinery Electric on October 8, 2024 and sell it today you would earn a total of  0.90  from holding Chongqing Machinery Electric or generate 11.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	78.33%
Values	Daily Returns

Metro AG  vs.  Chongqing Machinery Electric

Metro AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Metro AG is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Chongqing Machinery

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chongqing Machinery Electric are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Chongqing Machinery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro AG and Chongqing Machinery

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

The idea behind Metro AG and Chongqing Machinery Electric 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.