Correlation Between MetLife Preferred and Abacus Life

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

By analyzing existing cross correlation between MetLife Preferred Stock and Abacus Life, you can compare the effects of market volatilities on MetLife Preferred and Abacus Life 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 MetLife Preferred with a short position of Abacus Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of MetLife Preferred and Abacus Life.

Diversification Opportunities for MetLife Preferred and Abacus Life

0.78

Correlation Coefficient

MetLife Preferred  Abacus Life

Poor diversification

The 3 months correlation between MetLife and Abacus is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding MetLife Preferred Stock and Abacus Life in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abacus Life and MetLife Preferred 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 MetLife Preferred Stock are associated (or correlated) with Abacus Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abacus Life has no effect on the direction of MetLife Preferred i.e., MetLife Preferred and Abacus Life go up and down completely randomly.

Pair Corralation between MetLife Preferred and Abacus Life

Assuming the 90 days trading horizon MetLife Preferred Stock is expected to generate 0.15 times more return on investment than Abacus Life. However, MetLife Preferred Stock is 6.59 times less risky than Abacus Life. It trades about -0.06 of its potential returns per unit of risk. Abacus Life is currently generating about -0.13 per unit of risk. If you would invest  2,387  in MetLife Preferred Stock on September 20, 2024 and sell it today you would lose (16.00) from holding MetLife Preferred Stock or give up 0.67% of portfolio value over 90 days.

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

MetLife Preferred Stock  vs.  Abacus Life

MetLife Preferred Stock

Risk-Adjusted Performance

0 of 100

Very Weak

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

Abacus Life

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abacus Life has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with MetLife Preferred and Abacus Life

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

The idea behind MetLife Preferred Stock and Abacus Life 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.