Correlation Between Metropolitan Steel and TPL Insurance

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

Diversification Opportunities for Metropolitan Steel and TPL Insurance

0.13

Correlation Coefficient

Metropolitan Steel  TPL Insurance

Average diversification

The 3 months correlation between Metropolitan and TPL is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Steel Corp and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance 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 TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of Metropolitan Steel i.e., Metropolitan Steel and TPL Insurance go up and down completely randomly.

Pair Corralation between Metropolitan Steel and TPL Insurance

Assuming the 90 days trading horizon Metropolitan Steel Corp is expected to generate 1.36 times more return on investment than TPL Insurance. However, Metropolitan Steel is 1.36 times more volatile than TPL Insurance. It trades about -0.01 of its potential returns per unit of risk. TPL Insurance is currently generating about -0.06 per unit of risk. If you would invest  1,299  in Metropolitan Steel Corp on September 14, 2024 and sell it today you would lose (152.00) from holding Metropolitan Steel Corp or give up 11.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Metropolitan Steel Corp  vs.  TPL Insurance

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

TPL Insurance

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metropolitan Steel and TPL Insurance

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

The idea behind Metropolitan Steel Corp and TPL Insurance 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.