Correlation Between Basic Energy and Metro Retail

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

By analyzing existing cross correlation between Basic Energy Corp and Metro Retail Stores, you can compare the effects of market volatilities on Basic Energy and Metro Retail 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 Basic Energy with a short position of Metro Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Energy and Metro Retail.

Diversification Opportunities for Basic Energy and Metro Retail

0.07

Correlation Coefficient

Basic Energy  Metro Retail

Significant diversification

The 3 months correlation between Basic and Metro is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Basic Energy Corp and Metro Retail Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Retail Stores and Basic Energy 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 Basic Energy Corp are associated (or correlated) with Metro Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Retail Stores has no effect on the direction of Basic Energy i.e., Basic Energy and Metro Retail go up and down completely randomly.

Pair Corralation between Basic Energy and Metro Retail

Assuming the 90 days trading horizon Basic Energy Corp is expected to under-perform the Metro Retail. In addition to that, Basic Energy is 4.95 times more volatile than Metro Retail Stores. It trades about -0.09 of its total potential returns per unit of risk. Metro Retail Stores is currently generating about 0.12 per unit of volatility. If you would invest  120.00  in Metro Retail Stores on October 22, 2024 and sell it today you would earn a total of  2.00  from holding Metro Retail Stores or generate 1.67% return on investment over 90 days.

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

Basic Energy Corp  vs.  Metro Retail Stores

Basic Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Metro Retail Stores

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Metro Retail is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Basic Energy and Metro Retail

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

The idea behind Basic Energy Corp and Metro Retail Stores 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .