Correlation Between US Bancorp and MetLife Preferred

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

By analyzing existing cross correlation between US Bancorp and MetLife Preferred Stock, you can compare the effects of market volatilities on US Bancorp and MetLife Preferred 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 US Bancorp with a short position of MetLife Preferred. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Bancorp and MetLife Preferred.

Diversification Opportunities for US Bancorp and MetLife Preferred

0.62

Correlation Coefficient

US Bancorp  MetLife Preferred

Poor diversification

The 3 months correlation between USB-PR and MetLife is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and MetLife Preferred Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife Preferred Stock and US Bancorp 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 US Bancorp are associated (or correlated) with MetLife Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife Preferred Stock has no effect on the direction of US Bancorp i.e., US Bancorp and MetLife Preferred go up and down completely randomly.

Pair Corralation between US Bancorp and MetLife Preferred

Assuming the 90 days trading horizon US Bancorp is expected to under-perform the MetLife Preferred. But the preferred stock apears to be less risky and, when comparing its historical volatility, US Bancorp is 1.02 times less risky than MetLife Preferred. The preferred stock trades about -0.02 of its potential returns per unit of risk. The MetLife Preferred Stock is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,989  in MetLife Preferred Stock on December 23, 2024 and sell it today you would earn a total of  65.00  from holding MetLife Preferred Stock or generate 3.27% return on investment over 90 days.

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

US Bancorp  vs.  MetLife Preferred Stock

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, US Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

MetLife Preferred Stock

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife Preferred Stock are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MetLife Preferred is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with US Bancorp and MetLife Preferred

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

The idea behind US Bancorp and MetLife Preferred Stock 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.