Correlation Between MET and BF

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

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

Diversification Opportunities for MET and BF

0.79

Correlation Coefficient

MET  BF

Poor diversification

The 3 months correlation between MET and BF is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding MET and BF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF and MET 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 MET are associated (or correlated) with BF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF has no effect on the direction of MET i.e., MET and BF go up and down completely randomly.

Pair Corralation between MET and BF

Assuming the 90 days trading horizon MET is expected to generate 1.25 times less return on investment than BF. In addition to that, MET is 1.66 times more volatile than BF. It trades about 0.12 of its total potential returns per unit of risk. BF is currently generating about 0.25 per unit of volatility. If you would invest  0.17  in BF on September 2, 2024 and sell it today you would earn a total of  0.12  from holding BF or generate 67.87% return on investment over 90 days.

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

MET  vs.  BF

MET

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MET are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MET exhibited solid returns over the last few months and may actually be approaching a breakup point.

BF

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BF are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BF exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MET and BF

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

The idea behind MET and BF 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.