Correlation Between MTL and KARRAT

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

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

Diversification Opportunities for MTL and KARRAT

0.34

Correlation Coefficient

MTL  KARRAT

Weak diversification

The 3 months correlation between MTL and KARRAT is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding MTL and KARRAT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KARRAT and MTL 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 MTL are associated (or correlated) with KARRAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KARRAT has no effect on the direction of MTL i.e., MTL and KARRAT go up and down completely randomly.

Pair Corralation between MTL and KARRAT

Assuming the 90 days trading horizon MTL is expected to generate 1.46 times less return on investment than KARRAT. But when comparing it to its historical volatility, MTL is 3.02 times less risky than KARRAT. It trades about 0.21 of its potential returns per unit of risk. KARRAT is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  31.00  in KARRAT on September 1, 2024 and sell it today you would earn a total of  18.00  from holding KARRAT or generate 58.06% return on investment over 90 days.

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

MTL  vs.  KARRAT

MTL

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, MTL exhibited solid returns over the last few months and may actually be approaching a breakup point.

KARRAT

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KARRAT are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, KARRAT sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTL and KARRAT

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

The idea behind MTL and KARRAT 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.