Correlation Between Metro Bank and Sydbank

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

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

Diversification Opportunities for Metro Bank and Sydbank

0.59

Correlation Coefficient

Metro Bank  Sydbank

Very weak diversification

The 3 months correlation between Metro and Sydbank is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank PLC and Sydbank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sydbank and Metro Bank 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 Metro Bank PLC are associated (or correlated) with Sydbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sydbank has no effect on the direction of Metro Bank i.e., Metro Bank and Sydbank go up and down completely randomly.

Pair Corralation between Metro Bank and Sydbank

Assuming the 90 days trading horizon Metro Bank PLC is expected to generate 1.76 times more return on investment than Sydbank. However, Metro Bank is 1.76 times more volatile than Sydbank. It trades about 0.15 of its potential returns per unit of risk. Sydbank is currently generating about 0.12 per unit of risk. If you would invest  7,000  in Metro Bank PLC on October 25, 2024 and sell it today you would earn a total of  2,250  from holding Metro Bank PLC or generate 32.14% return on investment over 90 days.

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

Metro Bank PLC  vs.  Sydbank

Metro Bank PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Bank PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Metro Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sydbank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sydbank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Sydbank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Bank and Sydbank

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

The idea behind Metro Bank PLC and Sydbank 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.