Correlation Between Heico and MetLife
Can any of the company-specific risk be diversified away by investing in both Heico and MetLife 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 Heico and MetLife into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Heico and MetLife, you can compare the effects of market volatilities on Heico and MetLife 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 Heico with a short position of MetLife. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heico and MetLife.
Diversification Opportunities for Heico and MetLife
Modest diversification
The 3 months correlation between Heico and MetLife is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Heico and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife and Heico 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 Heico are associated (or correlated) with MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Heico i.e., Heico and MetLife go up and down completely randomly.
Pair Corralation between Heico and MetLife
Considering the 90-day investment horizon Heico is expected to generate 1.28 times less return on investment than MetLife. In addition to that, Heico is 1.06 times more volatile than MetLife. It trades about 0.06 of its total potential returns per unit of risk. MetLife is currently generating about 0.08 per unit of volatility. If you would invest 6,103 in MetLife on January 24, 2024 and sell it today you would earn a total of 1,093 from holding MetLife or generate 17.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Heico vs. MetLife
Performance |
| Timeline |
| Heico |
| MetLife |
Heico and MetLife Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Heico and MetLife
The main advantage of trading using opposite Heico and MetLife positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heico position performs unexpectedly, MetLife 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 will offset losses from the drop in MetLife's long position.The idea behind Heico and MetLife 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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