Correlation Between MTL and ARK

Can any of the company-specific risk be diversified away by investing in both MTL and ARK 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 ARK into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MTL and ARK, you can compare the effects of market volatilities on MTL and ARK 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 ARK. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTL and ARK.

Diversification Opportunities for MTL and ARK

0.81

Correlation Coefficient

MTL  ARK

Very poor diversification

The 3 months correlation between MTL and ARK is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding MTL and ARK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK 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 ARK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK has no effect on the direction of MTL i.e., MTL and ARK go up and down completely randomly.

Pair Corralation between MTL and ARK

Assuming the 90 days trading horizon MTL is expected to generate 2.72 times less return on investment than ARK. But when comparing it to its historical volatility, MTL is 1.26 times less risky than ARK. It trades about 0.01 of its potential returns per unit of risk. ARK is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  95.00  in ARK on January 17, 2024 and sell it today you would lose (25.00) from holding ARK or give up 26.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

MTL  vs.  ARK

MTL

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, MTL may actually be approaching a critical reversion point that can send shares even higher in May 2024.

ARK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ARK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, ARK is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MTL and ARK

The main advantage of trading using opposite MTL and ARK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTL position performs unexpectedly, ARK 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 ARK will offset losses from the drop in ARK's long position.

The idea behind MTL and ARK 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.