Correlation Between CHINA HUARONG and Metro AG

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

By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and Metro AG, you can compare the effects of market volatilities on CHINA HUARONG 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 CHINA HUARONG with a short position of Metro AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and Metro AG.

Diversification Opportunities for CHINA HUARONG and Metro AG

-0.1

Correlation Coefficient

CHINA HUARONG  Metro AG

Good diversification

The 3 months correlation between CHINA and Metro is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 and Metro AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro AG and CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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 CHINA HUARONG i.e., CHINA HUARONG and Metro AG go up and down completely randomly.

Pair Corralation between CHINA HUARONG and Metro AG

Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 9.1 times more return on investment than Metro AG. However, CHINA HUARONG is 9.1 times more volatile than Metro AG. It trades about 0.07 of its potential returns per unit of risk. Metro AG is currently generating about -0.08 per unit of risk. If you would invest  0.15  in CHINA HUARONG ENERHD 50 on September 22, 2024 and sell it today you would earn a total of  0.00  from holding CHINA HUARONG ENERHD 50 or generate 0.0% return on investment over 90 days.

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

CHINA HUARONG ENERHD 50  vs.  Metro AG

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG 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. Despite nearly stable fundamental drivers, Metro AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CHINA HUARONG and Metro AG

The main advantage of trading using opposite CHINA HUARONG and Metro AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG 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 CHINA HUARONG ENERHD 50 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.