Correlation Between Metalpha Technology and Locafy

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

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

Diversification Opportunities for Metalpha Technology and Locafy

0.45

Correlation Coefficient

Metalpha Technology  Locafy

Very weak diversification

The 3 months correlation between Metalpha and Locafy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Metalpha Technology Holding and Locafy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Locafy Limited and Metalpha Technology 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 Metalpha Technology Holding are associated (or correlated) with Locafy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Locafy Limited has no effect on the direction of Metalpha Technology i.e., Metalpha Technology and Locafy go up and down completely randomly.

Pair Corralation between Metalpha Technology and Locafy

Given the investment horizon of 90 days Metalpha Technology is expected to generate 2.26 times less return on investment than Locafy. But when comparing it to its historical volatility, Metalpha Technology Holding is 3.59 times less risky than Locafy. It trades about 0.13 of its potential returns per unit of risk. Locafy Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,670  in Locafy Limited on December 29, 2024 and sell it today you would lose (1,180) from holding Locafy Limited or give up 70.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	86.89%
Values	Daily Returns

Metalpha Technology Holding  vs.  Locafy Limited

Metalpha Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metalpha Technology Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Metalpha Technology demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Locafy Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Locafy Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Locafy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metalpha Technology and Locafy

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

The idea behind Metalpha Technology Holding and Locafy Limited 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.