Correlation Between EM and MTL

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

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

Diversification Opportunities for EM and MTL

0.0

Correlation Coefficient

EM  MTL

Pay attention - limited upside

The 3 months correlation between EM and MTL is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EM and MTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTL and EM 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 EM are associated (or correlated) with MTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTL has no effect on the direction of EM i.e., EM and MTL go up and down completely randomly.

Pair Corralation between EM and MTL

Assuming the 90 days horizon EM is expected to under-perform the MTL. In addition to that, EM is 1.53 times more volatile than MTL. It trades about -0.08 of its total potential returns per unit of risk. MTL is currently generating about 0.03 per unit of volatility. If you would invest  156.00  in MTL on September 1, 2024 and sell it today you would lose (1.00) from holding MTL or give up 0.64% of portfolio value over 90 days.

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

EM  vs.  MTL

EM

Risk-Adjusted Performance

0 of 100

Very Weak

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

MTL

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, MTL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EM and MTL

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

The idea behind EM and MTL 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.