Correlation Between Delta Electronics and Metro Systems

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

By analyzing existing cross correlation between Delta Electronics Public and Metro Systems, you can compare the effects of market volatilities on Delta Electronics and Metro Systems 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 Delta Electronics with a short position of Metro Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Delta Electronics and Metro Systems.

Diversification Opportunities for Delta Electronics and Metro Systems

-0.82

Correlation Coefficient

Delta Electronics  Metro Systems

Pay attention - limited upside

The 3 months correlation between Delta and Metro is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Delta Electronics Public and Metro Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Systems and Delta Electronics 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 Delta Electronics Public are associated (or correlated) with Metro Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Systems has no effect on the direction of Delta Electronics i.e., Delta Electronics and Metro Systems go up and down completely randomly.

Pair Corralation between Delta Electronics and Metro Systems

Assuming the 90 days trading horizon Delta Electronics Public is expected to generate 4.41 times more return on investment than Metro Systems. However, Delta Electronics is 4.41 times more volatile than Metro Systems. It trades about 0.22 of its potential returns per unit of risk. Metro Systems is currently generating about -0.1 per unit of risk. If you would invest  10,350  in Delta Electronics Public on September 13, 2024 and sell it today you would earn a total of  4,750  from holding Delta Electronics Public or generate 45.89% return on investment over 90 days.

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

Delta Electronics Public  vs.  Metro Systems

Delta Electronics Public

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Electronics Public are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Delta Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Metro Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Metro Systems is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Delta Electronics and Metro Systems

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

The idea behind Delta Electronics Public and Metro Systems 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.