Correlation Between MTL and VINCI

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

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

Diversification Opportunities for MTL and VINCI

0.8

Correlation Coefficient

MTL  VINCI

Very poor diversification

The 3 months correlation between MTL and VINCI is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MTL and VINCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VINCI 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 VINCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VINCI has no effect on the direction of MTL i.e., MTL and VINCI go up and down completely randomly.

Pair Corralation between MTL and VINCI

Assuming the 90 days trading horizon MTL is expected to generate 1.58 times more return on investment than VINCI. However, MTL is 1.58 times more volatile than VINCI. It trades about 0.17 of its potential returns per unit of risk. VINCI is currently generating about 0.24 per unit of risk. If you would invest  88.00  in MTL on August 30, 2024 and sell it today you would earn a total of  57.00  from holding MTL or generate 64.77% return on investment over 90 days.

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

MTL  vs.  VINCI

MTL

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 13 (%) 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.

VINCI

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VINCI are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, VINCI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTL and VINCI

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

The idea behind MTL and VINCI 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.