Correlation Between EFU General and Metropolitan Steel

Can any of the company-specific risk be diversified away by investing in both EFU General and Metropolitan Steel 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 EFU General and Metropolitan Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EFU General Insurance and Metropolitan Steel Corp, you can compare the effects of market volatilities on EFU General and Metropolitan Steel 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 EFU General with a short position of Metropolitan Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and Metropolitan Steel.

Diversification Opportunities for EFU General and Metropolitan Steel

-0.49

Correlation Coefficient

EFU General  Metropolitan Steel

Very good diversification

The 3 months correlation between EFU and Metropolitan is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and Metropolitan Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan Steel Corp and EFU General 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 EFU General Insurance are associated (or correlated) with Metropolitan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan Steel Corp has no effect on the direction of EFU General i.e., EFU General and Metropolitan Steel go up and down completely randomly.

Pair Corralation between EFU General and Metropolitan Steel

Assuming the 90 days trading horizon EFU General Insurance is expected to generate 0.64 times more return on investment than Metropolitan Steel. However, EFU General Insurance is 1.57 times less risky than Metropolitan Steel. It trades about 0.07 of its potential returns per unit of risk. Metropolitan Steel Corp is currently generating about -0.04 per unit of risk. If you would invest  7,369  in EFU General Insurance on September 14, 2024 and sell it today you would earn a total of  4,932  from holding EFU General Insurance or generate 66.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.25%
Values	Daily Returns

EFU General Insurance  vs.  Metropolitan Steel Corp

EFU General Insurance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General sustained solid returns over the last few months and may actually be approaching a breakup point.

Metropolitan Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan Steel Corp 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with EFU General and Metropolitan Steel

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

The idea behind EFU General Insurance and Metropolitan Steel Corp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.