Correlation Between Metro Retail and Bright Kindle

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

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

Diversification Opportunities for Metro Retail and Bright Kindle

-0.4

Correlation Coefficient

Metro Retail  Bright Kindle

Very good diversification

The 3 months correlation between Metro and Bright is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and Bright Kindle Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Kindle Resources and Metro Retail 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 Metro Retail Stores are associated (or correlated) with Bright Kindle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Kindle Resources has no effect on the direction of Metro Retail i.e., Metro Retail and Bright Kindle go up and down completely randomly.

Pair Corralation between Metro Retail and Bright Kindle

Assuming the 90 days trading horizon Metro Retail Stores is expected to under-perform the Bright Kindle. But the stock apears to be less risky and, when comparing its historical volatility, Metro Retail Stores is 2.98 times less risky than Bright Kindle. The stock trades about -0.03 of its potential returns per unit of risk. The Bright Kindle Resources is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  117.00  in Bright Kindle Resources on September 29, 2024 and sell it today you would lose (18.00) from holding Bright Kindle Resources or give up 15.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.52%
Values	Daily Returns

Metro Retail Stores  vs.  Bright Kindle Resources

Metro Retail Stores

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro Retail Stores has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Metro Retail is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Bright Kindle Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Kindle Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Bright Kindle exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Retail and Bright Kindle

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

The idea behind Metro Retail Stores and Bright Kindle Resources 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.