Correlation Between Metro Retail and RFM Corp

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

Diversification Opportunities for Metro Retail and RFM Corp

0.19

Correlation Coefficient

Metro Retail  RFM Corp

Average diversification

The 3 months correlation between Metro and RFM is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and RFM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RFM Corp 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 RFM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RFM Corp has no effect on the direction of Metro Retail i.e., Metro Retail and RFM Corp go up and down completely randomly.

Pair Corralation between Metro Retail and RFM Corp

Assuming the 90 days trading horizon Metro Retail Stores is expected to under-perform the RFM Corp. In addition to that, Metro Retail is 1.02 times more volatile than RFM Corp. It trades about -0.01 of its total potential returns per unit of risk. RFM Corp is currently generating about 0.07 per unit of volatility. If you would invest  348.00  in RFM Corp on September 23, 2024 and sell it today you would earn a total of  41.00  from holding RFM Corp or generate 11.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.19%
Values	Daily Returns

Metro Retail Stores  vs.  RFM Corp

Metro Retail Stores

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 4 (%) 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.

RFM Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RFM Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, RFM Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Metro Retail and RFM Corp

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

The idea behind Metro Retail Stores and RFM Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.