Correlation Between Metropolitan Steel and Pakistan Telecommunicatio

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

Diversification Opportunities for Metropolitan Steel and Pakistan Telecommunicatio

0.61

Correlation Coefficient

Metropolitan Steel  Pakistan Telecommunicatio

Poor diversification

The 3 months correlation between Metropolitan and Pakistan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Steel Corp and Pakistan Telecommunication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Telecommunicatio 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 Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Telecommunicatio has no effect on the direction of Metropolitan Steel i.e., Metropolitan Steel and Pakistan Telecommunicatio go up and down completely randomly.

Pair Corralation between Metropolitan Steel and Pakistan Telecommunicatio

Assuming the 90 days trading horizon Metropolitan Steel Corp is expected to under-perform the Pakistan Telecommunicatio. But the stock apears to be less risky and, when comparing its historical volatility, Metropolitan Steel Corp is 1.5 times less risky than Pakistan Telecommunicatio. The stock trades about -0.05 of its potential returns per unit of risk. The Pakistan Telecommunication is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,208  in Pakistan Telecommunication on December 4, 2024 and sell it today you would earn a total of  115.00  from holding Pakistan Telecommunication or generate 5.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Metropolitan Steel Corp  vs.  Pakistan Telecommunication

Metropolitan Steel Corp

Risk-Adjusted Performance

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 weak 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.

Pakistan Telecommunicatio

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Telecommunication are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Pakistan Telecommunicatio may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Metropolitan Steel and Pakistan Telecommunicatio

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

The idea behind Metropolitan Steel Corp and Pakistan Telecommunication 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.