Correlation Between Metro and Transcontinental

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

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

Diversification Opportunities for Metro and Transcontinental

0.39

Correlation Coefficient

Metro  Transcontinental

Weak diversification

The 3 months correlation between Metro and Transcontinental is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Metro Inc and Transcontinental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcontinental 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 Transcontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcontinental has no effect on the direction of Metro i.e., Metro and Transcontinental go up and down completely randomly.

Pair Corralation between Metro and Transcontinental

Assuming the 90 days trading horizon Metro Inc is expected to under-perform the Transcontinental. But the stock apears to be less risky and, when comparing its historical volatility, Metro Inc is 1.48 times less risky than Transcontinental. The stock trades about -0.22 of its potential returns per unit of risk. The Transcontinental is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  1,800  in Transcontinental on October 13, 2024 and sell it today you would lose (55.00) from holding Transcontinental or give up 3.06% of portfolio value over 90 days.

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

Metro Inc  vs.  Transcontinental

Metro Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Metro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Transcontinental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transcontinental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Transcontinental is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Metro and Transcontinental

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

The idea behind Metro Inc and Transcontinental 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.