Correlation Between Metro Bank and Berkshire Hathaway

Can any of the company-specific risk be diversified away by investing in both Metro Bank and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway, you can compare the effects of market volatilities on Metro Bank and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Bank and Berkshire Hathaway.

Diversification Opportunities for Metro Bank and Berkshire Hathaway

-0.28

Correlation Coefficient

Metro Bank  Berkshire Hathaway

Very good diversification

The 3 months correlation between Metro and Berkshire is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank PLC and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Metro Bank i.e., Metro Bank and Berkshire Hathaway go up and down completely randomly.

Pair Corralation between Metro Bank and Berkshire Hathaway

Assuming the 90 days trading horizon Metro Bank PLC is expected to under-perform the Berkshire Hathaway. In addition to that, Metro Bank is 1.78 times more volatile than Berkshire Hathaway. It trades about -0.02 of its total potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.18 per unit of volatility. If you would invest  45,500  in Berkshire Hathaway on December 24, 2024 and sell it today you would earn a total of  8,150  from holding Berkshire Hathaway or generate 17.91% return on investment over 90 days.

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

Metro Bank PLC  vs.  Berkshire Hathaway

Metro Bank PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metro Bank PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Metro Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Berkshire Hathaway

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Berkshire Hathaway unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Bank and Berkshire Hathaway

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

The idea behind Metro Bank PLC and Berkshire Hathaway 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.