Correlation Between MTR Corp and Epiroc AB

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

By analyzing existing cross correlation between MTR Corp and Epiroc AB, you can compare the effects of market volatilities on MTR Corp and Epiroc AB 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 MTR Corp with a short position of Epiroc AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTR Corp and Epiroc AB.

Diversification Opportunities for MTR Corp and Epiroc AB

-0.21

Correlation Coefficient

MTR Corp  Epiroc AB

Very good diversification

The 3 months correlation between MTR and Epiroc is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding MTR Corp and Epiroc AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epiroc AB and MTR Corp 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 MTR Corp are associated (or correlated) with Epiroc AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epiroc AB has no effect on the direction of MTR Corp i.e., MTR Corp and Epiroc AB go up and down completely randomly.

Pair Corralation between MTR Corp and Epiroc AB

Assuming the 90 days horizon MTR Corp is expected to under-perform the Epiroc AB. But the pink sheet apears to be less risky and, when comparing its historical volatility, MTR Corp is 1.02 times less risky than Epiroc AB. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Epiroc AB is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,900  in Epiroc AB on January 24, 2024 and sell it today you would lose (2.00) from holding Epiroc AB or give up 0.11% of portfolio value over 90 days.

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

MTR Corp  vs.  Epiroc AB

MTR Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Epiroc AB

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Epiroc AB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal forward-looking signals, Epiroc AB may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with MTR Corp and Epiroc AB

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

The idea behind MTR Corp and Epiroc AB 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.