Correlation Between First and Metro Bank

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

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

Diversification Opportunities for First and Metro Bank

0.43

Correlation Coefficient

First  Metro Bank

Very weak diversification

The 3 months correlation between First and Metro is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Metro Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Bank PLC and First 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 First Class Metals are associated (or correlated) with Metro Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Bank PLC has no effect on the direction of First i.e., First and Metro Bank go up and down completely randomly.

Pair Corralation between First and Metro Bank

Assuming the 90 days trading horizon First Class Metals is expected to under-perform the Metro Bank. In addition to that, First is 1.18 times more volatile than Metro Bank PLC. It trades about -0.22 of its total potential returns per unit of risk. Metro Bank PLC is currently generating about -0.03 per unit of volatility. If you would invest  9,400  in Metro Bank PLC on October 11, 2024 and sell it today you would lose (270.00) from holding Metro Bank PLC or give up 2.87% of portfolio value over 90 days.

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

First Class Metals  vs.  Metro Bank PLC

First Class Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Class Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Metro Bank PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Bank PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metro Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First and Metro Bank

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

The idea behind First Class Metals and Metro Bank PLC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.