Correlation Between Webster Financial and Metro AG

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

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

Diversification Opportunities for Webster Financial and Metro AG

-0.44

Correlation Coefficient

Webster Financial  Metro AG

Very good diversification

The 3 months correlation between Webster and Metro is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Webster Financial and Metro AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro AG and Webster Financial 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 Webster Financial are associated (or correlated) with Metro AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro AG has no effect on the direction of Webster Financial i.e., Webster Financial and Metro AG go up and down completely randomly.

Pair Corralation between Webster Financial and Metro AG

Assuming the 90 days horizon Webster Financial is expected to generate 1.27 times more return on investment than Metro AG. However, Webster Financial is 1.27 times more volatile than Metro AG. It trades about 0.03 of its potential returns per unit of risk. Metro AG is currently generating about -0.08 per unit of risk. If you would invest  4,494  in Webster Financial on October 24, 2024 and sell it today you would earn a total of  1,306  from holding Webster Financial or generate 29.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Webster Financial  vs.  Metro AG

Webster Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Webster Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Webster Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Metro AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Webster Financial and Metro AG

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

The idea behind Webster Financial and Metro AG 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.