Correlation Between Metrovacesa and Lar Espana

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

By analyzing existing cross correlation between Metrovacesa SA and Lar Espana Real, you can compare the effects of market volatilities on Metrovacesa and Lar Espana 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 Metrovacesa with a short position of Lar Espana. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metrovacesa and Lar Espana.

Diversification Opportunities for Metrovacesa and Lar Espana

0.51

Correlation Coefficient

Metrovacesa  Lar Espana

Very weak diversification

The 3 months correlation between Metrovacesa and Lar is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Metrovacesa SA and Lar Espana Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lar Espana Real and Metrovacesa 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 Metrovacesa SA are associated (or correlated) with Lar Espana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lar Espana Real has no effect on the direction of Metrovacesa i.e., Metrovacesa and Lar Espana go up and down completely randomly.

Pair Corralation between Metrovacesa and Lar Espana

Assuming the 90 days trading horizon Metrovacesa SA is expected to generate 0.73 times more return on investment than Lar Espana. However, Metrovacesa SA is 1.37 times less risky than Lar Espana. It trades about 0.11 of its potential returns per unit of risk. Lar Espana Real is currently generating about 0.07 per unit of risk. If you would invest  646.00  in Metrovacesa SA on December 2, 2024 and sell it today you would earn a total of  342.00  from holding Metrovacesa SA or generate 52.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.08%
Values	Daily Returns

Metrovacesa SA  vs.  Lar Espana Real

Metrovacesa SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metrovacesa SA are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Metrovacesa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lar Espana Real

Risk-Adjusted Performance

Weak

Over the last 90 days Lar Espana Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Lar Espana is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Metrovacesa and Lar Espana

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

The idea behind Metrovacesa SA and Lar Espana Real 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.