Correlation Between Metropolitan Steel and Pakistan Cables

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

Diversification Opportunities for Metropolitan Steel and Pakistan Cables

0.18

Correlation Coefficient

Metropolitan Steel  Pakistan Cables

Average diversification

The 3 months correlation between Metropolitan and Pakistan is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Steel Corp and Pakistan Cables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Cables 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 Pakistan Cables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Cables has no effect on the direction of Metropolitan Steel i.e., Metropolitan Steel and Pakistan Cables go up and down completely randomly.

Pair Corralation between Metropolitan Steel and Pakistan Cables

Assuming the 90 days trading horizon Metropolitan Steel Corp is expected to under-perform the Pakistan Cables. In addition to that, Metropolitan Steel is 1.38 times more volatile than Pakistan Cables. It trades about -0.08 of its total potential returns per unit of risk. Pakistan Cables is currently generating about 0.08 per unit of volatility. If you would invest  10,908  in Pakistan Cables on October 3, 2024 and sell it today you would earn a total of  7,231  from holding Pakistan Cables or generate 66.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.76%
Values	Daily Returns

Metropolitan Steel Corp  vs.  Pakistan Cables

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 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.

Pakistan Cables

Risk-Adjusted Performance

14 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Cables are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pakistan Cables sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metropolitan Steel and Pakistan Cables

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

The idea behind Metropolitan Steel Corp and Pakistan Cables 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.