Correlation Between Metro Retail and LT

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

Diversification Opportunities for Metro Retail and LT

0.26

Correlation Coefficient

Metro Retail  LT

Modest diversification

The 3 months correlation between Metro and LT is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and LT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Group 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 LT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Group has no effect on the direction of Metro Retail i.e., Metro Retail and LT go up and down completely randomly.

Pair Corralation between Metro Retail and LT

Assuming the 90 days trading horizon Metro Retail Stores is expected to under-perform the LT. In addition to that, Metro Retail is 1.53 times more volatile than LT Group. It trades about -0.12 of its total potential returns per unit of risk. LT Group is currently generating about 0.42 per unit of volatility. If you would invest  1,050  in LT Group on October 25, 2024 and sell it today you would earn a total of  76.00  from holding LT Group or generate 7.24% return on investment over 90 days.

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

Metro Retail Stores  vs.  LT Group

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.

LT Group

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in LT Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, LT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Retail and LT

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

The idea behind Metro Retail Stores and LT Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.