Correlation Between Hi Tech and Metropolitan Steel

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

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

Diversification Opportunities for Hi Tech and Metropolitan Steel

0.09

Correlation Coefficient

Hi Tech  Metropolitan Steel

Significant diversification

The 3 months correlation between HTL and Metropolitan is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Hi Tech Lubricants 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 Hi Tech 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 Hi Tech Lubricants 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 Hi Tech i.e., Hi Tech and Metropolitan Steel go up and down completely randomly.

Pair Corralation between Hi Tech and Metropolitan Steel

Assuming the 90 days trading horizon Hi Tech Lubricants is expected to generate 1.39 times more return on investment than Metropolitan Steel. However, Hi Tech is 1.39 times more volatile than Metropolitan Steel Corp. It trades about 0.09 of its potential returns per unit of risk. Metropolitan Steel Corp is currently generating about -0.03 per unit of risk. If you would invest  3,957  in Hi Tech Lubricants on October 25, 2024 and sell it today you would earn a total of  820.00  from holding Hi Tech Lubricants or generate 20.72% return on investment over 90 days.

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

Hi Tech Lubricants  vs.  Metropolitan Steel Corp

Hi Tech Lubricants

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Hi Tech reported 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 somewhat strong basic indicators, Metropolitan Steel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hi Tech and Metropolitan Steel

The main advantage of trading using opposite Hi Tech and Metropolitan Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hi Tech 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 Hi Tech Lubricants 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.