Correlation Between MTL and ADX
Can any of the company-specific risk be diversified away by investing in both MTL and ADX 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 MTL and ADX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MTL and ADX, you can compare the effects of market volatilities on MTL and ADX 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 MTL with a short position of ADX. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTL and ADX.
Diversification Opportunities for MTL and ADX
Very poor diversification
The 3 months correlation between MTL and ADX is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding MTL and ADX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX and MTL 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 MTL are associated (or correlated) with ADX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX has no effect on the direction of MTL i.e., MTL and ADX go up and down completely randomly.
Pair Corralation between MTL and ADX
Assuming the 90 days trading horizon MTL is expected to generate 1.13 times more return on investment than ADX. However, MTL is 1.13 times more volatile than ADX. It trades about 0.03 of its potential returns per unit of risk. ADX is currently generating about 0.02 per unit of risk. If you would invest 242.00 in MTL on December 30, 2023 and sell it today you would lose (17.00) from holding MTL or give up 7.02% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
MTL vs. ADX
Performance |
Timeline |
MTL |
ADX |
MTL and ADX Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MTL and ADX
The main advantage of trading using opposite MTL and ADX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTL position performs unexpectedly, ADX 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 ADX will offset losses from the drop in ADX's long position.The idea behind MTL and ADX 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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