Correlation Between Metropolitan Steel and Millat Tractors

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

Diversification Opportunities for Metropolitan Steel and Millat Tractors

-0.2

Correlation Coefficient

Metropolitan Steel  Millat Tractors

Good diversification

The 3 months correlation between Metropolitan and Millat is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Steel Corp and Millat Tractors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Millat Tractors 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 Millat Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Millat Tractors has no effect on the direction of Metropolitan Steel i.e., Metropolitan Steel and Millat Tractors go up and down completely randomly.

Pair Corralation between Metropolitan Steel and Millat Tractors

Assuming the 90 days trading horizon Metropolitan Steel is expected to generate 1.65 times less return on investment than Millat Tractors. But when comparing it to its historical volatility, Metropolitan Steel Corp is 1.13 times less risky than Millat Tractors. It trades about 0.12 of its potential returns per unit of risk. Millat Tractors is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  64,343  in Millat Tractors on October 6, 2024 and sell it today you would earn a total of  8,786  from holding Millat Tractors or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Metropolitan Steel Corp  vs.  Millat Tractors

Metropolitan Steel Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Metropolitan Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Metropolitan Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Millat Tractors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Millat Tractors are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Millat Tractors reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metropolitan Steel and Millat Tractors

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

The idea behind Metropolitan Steel Corp and Millat Tractors 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.