Correlation Between MetLife Preferred and Brighthouse Financial

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

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

Diversification Opportunities for MetLife Preferred and Brighthouse Financial

0.83

Correlation Coefficient

MetLife Preferred  Brighthouse Financial

Very poor diversification

The 3 months correlation between MetLife and Brighthouse is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MetLife Preferred Stock and Brighthouse Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brighthouse Financial and MetLife Preferred 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 MetLife Preferred Stock are associated (or correlated) with Brighthouse Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brighthouse Financial has no effect on the direction of MetLife Preferred i.e., MetLife Preferred and Brighthouse Financial go up and down completely randomly.

Pair Corralation between MetLife Preferred and Brighthouse Financial

Assuming the 90 days trading horizon MetLife Preferred is expected to generate 1.73 times less return on investment than Brighthouse Financial. But when comparing it to its historical volatility, MetLife Preferred Stock is 2.21 times less risky than Brighthouse Financial. It trades about 0.04 of its potential returns per unit of risk. Brighthouse Financial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,519  in Brighthouse Financial on September 19, 2024 and sell it today you would earn a total of  364.00  from holding Brighthouse Financial or generate 23.96% return on investment over 90 days.

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

MetLife Preferred Stock  vs.  Brighthouse Financial

MetLife Preferred Stock

Risk-Adjusted Performance

0 of 100

Very Weak

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

Brighthouse Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brighthouse Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brighthouse Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MetLife Preferred and Brighthouse Financial

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

The idea behind MetLife Preferred Stock and Brighthouse Financial 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.