Correlation Between MetLife and Citic

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

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

Diversification Opportunities for MetLife and Citic

0.73

Correlation Coefficient

MetLife  Citic

Poor diversification

The 3 months correlation between MetLife and Citic is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MetLife and Citic Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Ltd ADR and MetLife 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 are associated (or correlated) with Citic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Ltd ADR has no effect on the direction of MetLife i.e., MetLife and Citic go up and down completely randomly.

Pair Corralation between MetLife and Citic

Considering the 90-day investment horizon MetLife is expected to generate 2.39 times less return on investment than Citic. But when comparing it to its historical volatility, MetLife is 2.23 times less risky than Citic. It trades about 0.13 of its potential returns per unit of risk. Citic Ltd ADR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  469.00  in Citic Ltd ADR on September 4, 2024 and sell it today you would earn a total of  138.00  from holding Citic Ltd ADR or generate 29.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

MetLife  vs.  Citic Ltd ADR

MetLife

Risk-Adjusted Performance

9 of 100

OK

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

Citic Ltd ADR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citic Ltd ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Citic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MetLife and Citic

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

The idea behind MetLife and Citic Ltd ADR 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.