Correlation Between Bunzl Plc and Metro AG

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

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

Diversification Opportunities for Bunzl Plc and Metro AG

0.22

Correlation Coefficient

Bunzl Plc  Metro AG

Modest diversification

The 3 months correlation between Bunzl and Metro is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Bunzl plc and Metro AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro AG and Bunzl Plc 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 Bunzl plc are associated (or correlated) with Metro AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro AG has no effect on the direction of Bunzl Plc i.e., Bunzl Plc and Metro AG go up and down completely randomly.

Pair Corralation between Bunzl Plc and Metro AG

Assuming the 90 days trading horizon Bunzl plc is expected to under-perform the Metro AG. But the stock apears to be less risky and, when comparing its historical volatility, Bunzl plc is 1.16 times less risky than Metro AG. The stock trades about -0.1 of its potential returns per unit of risk. The Metro AG is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  500.00  in Metro AG on September 22, 2024 and sell it today you would lose (16.00) from holding Metro AG or give up 3.2% of portfolio value over 90 days.

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

Bunzl plc  vs.  Metro AG

Bunzl plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bunzl plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bunzl Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly stable fundamental drivers, Metro AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bunzl Plc and Metro AG

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

The idea behind Bunzl plc and Metro AG 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.