Correlation Between Meta Platforms and Seek

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

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

Diversification Opportunities for Meta Platforms and Seek

0.8

Correlation Coefficient

Meta Platforms  Seek

Very poor diversification

The 3 months correlation between Meta and Seek is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Seek Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seek Ltd ADR and Meta Platforms 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 Meta Platforms are associated (or correlated) with Seek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seek Ltd ADR has no effect on the direction of Meta Platforms i.e., Meta Platforms and Seek go up and down completely randomly.

Pair Corralation between Meta Platforms and Seek

Given the investment horizon of 90 days Meta Platforms is expected to generate 0.82 times more return on investment than Seek. However, Meta Platforms is 1.22 times less risky than Seek. It trades about 0.13 of its potential returns per unit of risk. Seek Ltd ADR is currently generating about 0.1 per unit of risk. If you would invest  51,127  in Meta Platforms on September 1, 2024 and sell it today you would earn a total of  6,305  from holding Meta Platforms or generate 12.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Meta Platforms  vs.  Seek Ltd ADR

Meta Platforms

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Seek Ltd ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Seek Ltd ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Seek may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Meta Platforms and Seek

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

The idea behind Meta Platforms and Seek Ltd ADR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.