Correlation Between Metropolitan Steel and Engro Polymer

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

By analyzing existing cross correlation between Metropolitan Steel Corp and Engro Polymer Chemicals, you can compare the effects of market volatilities on Metropolitan Steel and Engro Polymer 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 Metropolitan Steel with a short position of Engro Polymer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metropolitan Steel and Engro Polymer.

Diversification Opportunities for Metropolitan Steel and Engro Polymer

-0.46

Correlation Coefficient

Metropolitan Steel  Engro Polymer

Very good diversification

The 3 months correlation between Metropolitan and Engro is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Steel Corp and Engro Polymer Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Polymer Chemicals and Metropolitan Steel 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 Metropolitan Steel Corp are associated (or correlated) with Engro Polymer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Polymer Chemicals has no effect on the direction of Metropolitan Steel i.e., Metropolitan Steel and Engro Polymer go up and down completely randomly.

Pair Corralation between Metropolitan Steel and Engro Polymer

Assuming the 90 days trading horizon Metropolitan Steel Corp is expected to generate 1.96 times more return on investment than Engro Polymer. However, Metropolitan Steel is 1.96 times more volatile than Engro Polymer Chemicals. It trades about -0.07 of its potential returns per unit of risk. Engro Polymer Chemicals is currently generating about -0.19 per unit of risk. If you would invest  1,119  in Metropolitan Steel Corp on October 11, 2024 and sell it today you would lose (68.00) from holding Metropolitan Steel Corp or give up 6.08% of portfolio value over 90 days.

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

Metropolitan Steel Corp  vs.  Engro Polymer Chemicals

Metropolitan Steel Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metropolitan Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Engro Polymer Chemicals

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Polymer Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Engro Polymer sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metropolitan Steel and Engro Polymer

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

The idea behind Metropolitan Steel Corp and Engro Polymer Chemicals 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.