Correlation Between Metro and Clarke

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

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

Diversification Opportunities for Metro and Clarke

-0.85

Correlation Coefficient

Metro  Clarke

Pay attention - limited upside

The 3 months correlation between Metro and Clarke is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Metro Inc and Clarke Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clarke Inc and Metro 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 Inc are associated (or correlated) with Clarke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clarke Inc has no effect on the direction of Metro i.e., Metro and Clarke go up and down completely randomly.

Pair Corralation between Metro and Clarke

Assuming the 90 days trading horizon Metro Inc is expected to generate 1.51 times more return on investment than Clarke. However, Metro is 1.51 times more volatile than Clarke Inc. It trades about 0.07 of its potential returns per unit of risk. Clarke Inc is currently generating about -0.11 per unit of risk. If you would invest  9,074  in Metro Inc on December 21, 2024 and sell it today you would earn a total of  426.00  from holding Metro Inc or generate 4.69% return on investment over 90 days.

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

Metro Inc  vs.  Clarke Inc

Metro Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Metro is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Clarke Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clarke Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Clarke is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Metro and Clarke

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

The idea behind Metro Inc and Clarke Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.