Correlation Between MET and LUKSO
Can any of the company-specific risk be diversified away by investing in both MET and LUKSO 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 LUKSO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MET and LUKSO, you can compare the effects of market volatilities on MET and LUKSO 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 LUKSO. Check out your portfolio center. Please also check ongoing floating volatility patterns of MET and LUKSO.
Diversification Opportunities for MET and LUKSO
Very weak diversification
The 3 months correlation between MET and LUKSO is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding MET and LUKSO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LUKSO 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 LUKSO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LUKSO has no effect on the direction of MET i.e., MET and LUKSO go up and down completely randomly.
Pair Corralation between MET and LUKSO
Assuming the 90 days trading horizon MET is expected to generate 1.21 times less return on investment than LUKSO. But when comparing it to its historical volatility, MET is 5.4 times less risky than LUKSO. It trades about 0.07 of its potential returns per unit of risk. LUKSO is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,989 in LUKSO on January 26, 2024 and sell it today you would lose (1,011) from holding LUKSO or give up 50.83% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
MET vs. LUKSO
Performance |
Timeline |
MET |
LUKSO |
MET and LUKSO Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MET and LUKSO
The main advantage of trading using opposite MET and LUKSO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MET position performs unexpectedly, LUKSO 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 LUKSO will offset losses from the drop in LUKSO's long position.The idea behind MET and LUKSO 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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