Correlation Between Metro Retail and First Abacus

Can any of the company-specific risk be diversified away by investing in both Metro Retail and First Abacus 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 First Abacus 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 First Abacus Financial, you can compare the effects of market volatilities on Metro Retail and First Abacus 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 First Abacus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Retail and First Abacus.

Diversification Opportunities for Metro Retail and First Abacus

0.2

Correlation Coefficient

Metro Retail  First Abacus

Modest diversification

The 3 months correlation between Metro and First is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and First Abacus Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Abacus Financial 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 First Abacus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Abacus Financial has no effect on the direction of Metro Retail i.e., Metro Retail and First Abacus go up and down completely randomly.

Pair Corralation between Metro Retail and First Abacus

Assuming the 90 days trading horizon Metro Retail is expected to generate 3.29 times less return on investment than First Abacus. But when comparing it to its historical volatility, Metro Retail Stores is 4.24 times less risky than First Abacus. It trades about 0.04 of its potential returns per unit of risk. First Abacus Financial is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  61.00  in First Abacus Financial on September 17, 2024 and sell it today you would earn a total of  0.00  from holding First Abacus Financial or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	29.03%
Values	Daily Returns

Metro Retail Stores  vs.  First Abacus Financial

Metro Retail Stores

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

First Abacus Financial

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days First Abacus Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak technical and fundamental indicators, First Abacus may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metro Retail and First Abacus

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

The idea behind Metro Retail Stores and First Abacus Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.