Correlation Between MET and DODO
Can any of the company-specific risk be diversified away by investing in both MET and DODO 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 MET and DODO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MET and DODO, you can compare the effects of market volatilities on MET and DODO 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 MET with a short position of DODO. Check out your portfolio center. Please also check ongoing floating volatility patterns of MET and DODO.
Diversification Opportunities for MET and DODO
Poor diversification
The 3 months correlation between MET and DODO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding MET and DODO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DODO and MET 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 MET are associated (or correlated) with DODO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DODO has no effect on the direction of MET i.e., MET and DODO go up and down completely randomly.
Pair Corralation between MET and DODO
Assuming the 90 days trading horizon MET is expected to generate 0.66 times more return on investment than DODO. However, MET is 1.51 times less risky than DODO. It trades about 0.09 of its potential returns per unit of risk. DODO is currently generating about -0.14 per unit of risk. If you would invest 132.00 in MET on January 25, 2024 and sell it today you would earn a total of 11.00 from holding MET or generate 8.33% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.65% |
Values | Daily Returns |
MET vs. DODO
Performance |
Timeline |
MET |
DODO |
MET and DODO Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MET and DODO
The main advantage of trading using opposite MET and DODO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MET position performs unexpectedly, DODO 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 DODO will offset losses from the drop in DODO's long position.The idea behind MET and DODO 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 Stocks Directory module to find actively traded stocks across global markets.
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