Correlation Between MFEC PCL and Metro Systems

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

By analyzing existing cross correlation between MFEC PCL and Metro Systems, you can compare the effects of market volatilities on MFEC PCL and Metro Systems 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 MFEC PCL with a short position of Metro Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of MFEC PCL and Metro Systems.

Diversification Opportunities for MFEC PCL and Metro Systems

-0.65

Correlation Coefficient

MFEC PCL  Metro Systems

Excellent diversification

The 3 months correlation between MFEC and Metro is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding MFEC PCL and Metro Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Systems and MFEC PCL 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 MFEC PCL are associated (or correlated) with Metro Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Systems has no effect on the direction of MFEC PCL i.e., MFEC PCL and Metro Systems go up and down completely randomly.

Pair Corralation between MFEC PCL and Metro Systems

Assuming the 90 days trading horizon MFEC PCL is expected to generate 1.91 times more return on investment than Metro Systems. However, MFEC PCL is 1.91 times more volatile than Metro Systems. It trades about 0.05 of its potential returns per unit of risk. Metro Systems is currently generating about -0.11 per unit of risk. If you would invest  575.00  in MFEC PCL on September 14, 2024 and sell it today you would earn a total of  20.00  from holding MFEC PCL or generate 3.48% return on investment over 90 days.

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

MFEC PCL  vs.  Metro Systems

MFEC PCL

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MFEC PCL are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, MFEC PCL is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Metro Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Metro Systems is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MFEC PCL and Metro Systems

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

The idea behind MFEC PCL and Metro Systems 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.