Correlation Between PACCAR and MTR Corp

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

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

Diversification Opportunities for PACCAR and MTR Corp

-0.32

Correlation Coefficient

PACCAR  MTR Corp

Very good diversification

The 3 months correlation between PACCAR and MTR is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and MTR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Corp and PACCAR 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 PACCAR Inc are associated (or correlated) with MTR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Corp has no effect on the direction of PACCAR i.e., PACCAR and MTR Corp go up and down completely randomly.

Pair Corralation between PACCAR and MTR Corp

Given the investment horizon of 90 days PACCAR Inc is expected to under-perform the MTR Corp. But the stock apears to be less risky and, when comparing its historical volatility, PACCAR Inc is 2.07 times less risky than MTR Corp. The stock trades about -0.41 of its potential returns per unit of risk. The MTR Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  317.00  in MTR Corp on January 23, 2024 and sell it today you would lose (9.00) from holding MTR Corp or give up 2.84% of portfolio value over 90 days.

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

PACCAR Inc  vs.  MTR Corp

PACCAR Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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.

Pair Trading with PACCAR and MTR Corp

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

The idea behind PACCAR Inc and MTR Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.