Correlation Between Metropolis Healthcare and GM Breweries

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

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

Diversification Opportunities for Metropolis Healthcare and GM Breweries

0.32

Correlation Coefficient

Metropolis Healthcare  GM Breweries

Weak diversification

The 3 months correlation between Metropolis and GMBREW is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Metropolis Healthcare Limited and GM Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GM Breweries Limited and Metropolis Healthcare 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 Metropolis Healthcare Limited are associated (or correlated) with GM Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GM Breweries Limited has no effect on the direction of Metropolis Healthcare i.e., Metropolis Healthcare and GM Breweries go up and down completely randomly.

Pair Corralation between Metropolis Healthcare and GM Breweries

Assuming the 90 days trading horizon Metropolis Healthcare is expected to generate 1.43 times less return on investment than GM Breweries. But when comparing it to its historical volatility, Metropolis Healthcare Limited is 1.84 times less risky than GM Breweries. It trades about 0.06 of its potential returns per unit of risk. GM Breweries Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  48,571  in GM Breweries Limited on September 5, 2024 and sell it today you would earn a total of  32,234  from holding GM Breweries Limited or generate 66.36% return on investment over 90 days.

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

Metropolis Healthcare Limited  vs.  GM Breweries Limited

Metropolis Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Metropolis Healthcare and GM Breweries

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

The idea behind Metropolis Healthcare Limited and GM Breweries 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.