Correlation Between Metro Systems and KCE Electronics

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

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

Diversification Opportunities for Metro Systems and KCE Electronics

0.74

Correlation Coefficient

Metro Systems  KCE Electronics

Poor diversification

The 3 months correlation between Metro and KCE is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Metro Systems and KCE Electronics Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KCE Electronics Public and Metro Systems 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 Systems are associated (or correlated) with KCE Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KCE Electronics Public has no effect on the direction of Metro Systems i.e., Metro Systems and KCE Electronics go up and down completely randomly.

Pair Corralation between Metro Systems and KCE Electronics

Assuming the 90 days trading horizon Metro Systems is expected to generate 0.27 times more return on investment than KCE Electronics. However, Metro Systems is 3.66 times less risky than KCE Electronics. It trades about -0.11 of its potential returns per unit of risk. KCE Electronics Public is currently generating about -0.28 per unit of risk. If you would invest  825.00  in Metro Systems on September 14, 2024 and sell it today you would lose (40.00) from holding Metro Systems or give up 4.85% of portfolio value over 90 days.

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

Metro Systems  vs.  KCE Electronics Public

Metro Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Metro Systems is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

KCE Electronics Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KCE Electronics Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Metro Systems and KCE Electronics

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

The idea behind Metro Systems and KCE Electronics Public 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.