Correlation Between Metro Bank and TechnipFMC PLC

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

Diversification Opportunities for Metro Bank and TechnipFMC PLC

0.91

Correlation Coefficient

Metro Bank  TechnipFMC PLC

Almost no diversification

The 3 months correlation between Metro and TechnipFMC is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank PLC and TechnipFMC PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TechnipFMC PLC 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 TechnipFMC PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TechnipFMC PLC has no effect on the direction of Metro Bank i.e., Metro Bank and TechnipFMC PLC go up and down completely randomly.

Pair Corralation between Metro Bank and TechnipFMC PLC

Assuming the 90 days trading horizon Metro Bank PLC is expected to generate 1.59 times more return on investment than TechnipFMC PLC. However, Metro Bank is 1.59 times more volatile than TechnipFMC PLC. It trades about 0.18 of its potential returns per unit of risk. TechnipFMC PLC is currently generating about 0.18 per unit of risk. If you would invest  6,840  in Metro Bank PLC on October 10, 2024 and sell it today you would earn a total of  2,560  from holding Metro Bank PLC or generate 37.43% return on investment over 90 days.

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

Metro Bank PLC  vs.  TechnipFMC PLC

Metro Bank PLC

Risk-Adjusted Performance

13 of 100

Good

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

TechnipFMC PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TechnipFMC PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, TechnipFMC PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metro Bank and TechnipFMC PLC

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

The idea behind Metro Bank PLC and TechnipFMC PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.