Correlation Between MTL and Serum

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

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

Diversification Opportunities for MTL and Serum

0.83

Correlation Coefficient

MTL  Serum

Very poor diversification

The 3 months correlation between MTL and Serum is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MTL and Serum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Serum 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 Serum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Serum has no effect on the direction of MTL i.e., MTL and Serum go up and down completely randomly.

Pair Corralation between MTL and Serum

Assuming the 90 days trading horizon MTL is expected to generate 1.06 times less return on investment than Serum. But when comparing it to its historical volatility, MTL is 1.08 times less risky than Serum. It trades about 0.01 of its potential returns per unit of risk. Serum is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4.90  in Serum on January 20, 2024 and sell it today you would lose (0.50) from holding Serum or give up 10.2% of portfolio value over 90 days.

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

MTL  vs.  Serum

MTL

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, MTL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Serum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Serum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Serum 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 Serum

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

The idea behind MTL and Serum 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.