Correlation Between MTR Corp and Alstom SA

Can any of the company-specific risk be diversified away by investing in both MTR Corp and Alstom SA 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 MTR Corp and Alstom SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MTR Corp Ltd and Alstom SA, you can compare the effects of market volatilities on MTR Corp and Alstom SA 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 MTR Corp with a short position of Alstom SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTR Corp and Alstom SA.

Diversification Opportunities for MTR Corp and Alstom SA

0.77

Correlation Coefficient

MTR Corp  Alstom SA

Poor diversification

The 3 months correlation between MTR and Alstom is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding MTR Corp Ltd and Alstom SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alstom SA and MTR Corp 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 MTR Corp Ltd are associated (or correlated) with Alstom SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alstom SA has no effect on the direction of MTR Corp i.e., MTR Corp and Alstom SA go up and down completely randomly.

Pair Corralation between MTR Corp and Alstom SA

Assuming the 90 days horizon MTR Corp Ltd is expected to generate 0.99 times more return on investment than Alstom SA. However, MTR Corp Ltd is 1.01 times less risky than Alstom SA. It trades about -0.01 of its potential returns per unit of risk. Alstom SA is currently generating about -0.04 per unit of risk. If you would invest  1,020  in MTR Corp Ltd on December 1, 2024 and sell it today you would lose (34.00) from holding MTR Corp Ltd or give up 3.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

MTR Corp Ltd  vs.  Alstom SA

MTR Corp

Risk-Adjusted Performance

Very Weak

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

Alstom SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alstom SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Alstom SA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MTR Corp and Alstom SA

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

The idea behind MTR Corp Ltd and Alstom SA 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 Stocks Directory module to find actively traded stocks across global markets.