Correlation Between Kava and MET

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Can any of the company-specific risk be diversified away by investing in both Kava and MET 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 Kava and MET into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kava and MET, you can compare the effects of market volatilities on Kava and MET 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 Kava with a short position of MET. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kava and MET.

Diversification Opportunities for Kava and MET

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Kava and MET is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Kava and MET in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MET and Kava 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 Kava are associated (or correlated) with MET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MET has no effect on the direction of Kava i.e., Kava and MET go up and down completely randomly.

Pair Corralation between Kava and MET

Assuming the 90 days trading horizon Kava is expected to generate 1.25 times less return on investment than MET. In addition to that, Kava is 1.23 times more volatile than MET. It trades about 0.15 of its total potential returns per unit of risk. MET is currently generating about 0.22 per unit of volatility. If you would invest  111.00  in MET on December 29, 2023 and sell it today you would earn a total of  27.00  from holding MET or generate 24.32% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Kava  vs.  MET

 Performance 
       Timeline  
Kava 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Kava are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Kava exhibited solid returns over the last few months and may actually be approaching a breakup point.
MET 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in MET are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MET exhibited solid returns over the last few months and may actually be approaching a breakup point.

Kava and MET Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kava and MET

The main advantage of trading using opposite Kava and MET positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kava position performs unexpectedly, MET 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 MET will offset losses from the drop in MET's long position.
The idea behind Kava and MET 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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