Correlation Between MTN and S A P

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

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

Diversification Opportunities for MTN and S A P

-0.58

Correlation Coefficient

MTN  S A P

Excellent diversification

The 3 months correlation between MTN and SAP is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding MTN Group and Sappi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sappi and MTN 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 MTN Group are associated (or correlated) with S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sappi has no effect on the direction of MTN i.e., MTN and S A P go up and down completely randomly.

Pair Corralation between MTN and S A P

Assuming the 90 days trading horizon MTN Group is expected to generate 1.36 times more return on investment than S A P. However, MTN is 1.36 times more volatile than Sappi. It trades about 0.06 of its potential returns per unit of risk. Sappi is currently generating about -0.14 per unit of risk. If you would invest  812,400  in MTN Group on September 24, 2024 and sell it today you would earn a total of  12,800  from holding MTN Group or generate 1.58% return on investment over 90 days.

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

MTN Group  vs.  Sappi

MTN Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTN Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sappi

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sappi are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, S A P is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MTN and S A P

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

The idea behind MTN Group and Sappi 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 Commodity Directory module to find actively traded commodities issued by global exchanges.