Correlation Between MTR and Union Pacific

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

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

Diversification Opportunities for MTR and Union Pacific

-0.23

Correlation Coefficient

MTR  Union Pacific

Very good diversification

The 3 months correlation between MTR and Union is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding MTR Limited and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific and MTR 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 MTR Limited are associated (or correlated) with Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of MTR i.e., MTR and Union Pacific go up and down completely randomly.

Pair Corralation between MTR and Union Pacific

Assuming the 90 days horizon MTR Limited is expected to generate 1.36 times more return on investment than Union Pacific. However, MTR is 1.36 times more volatile than Union Pacific. It trades about 0.06 of its potential returns per unit of risk. Union Pacific is currently generating about -0.19 per unit of risk. If you would invest  326.00  in MTR Limited on September 23, 2024 and sell it today you would earn a total of  6.00  from holding MTR Limited or generate 1.84% return on investment over 90 days.

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

MTR Limited  vs.  Union Pacific

MTR Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, MTR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Union Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MTR and Union Pacific

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

The idea behind MTR Limited and Union Pacific 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.