Correlation Between Metro Retail and Converge Information

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

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

Diversification Opportunities for Metro Retail and Converge Information

-0.14

Correlation Coefficient

Metro Retail  Converge Information

Good diversification

The 3 months correlation between Metro and Converge is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and Converge Information Communica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Converge Information and Metro Retail 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 Metro Retail Stores are associated (or correlated) with Converge Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Converge Information has no effect on the direction of Metro Retail i.e., Metro Retail and Converge Information go up and down completely randomly.

Pair Corralation between Metro Retail and Converge Information

Assuming the 90 days trading horizon Metro Retail Stores is expected to generate 0.59 times more return on investment than Converge Information. However, Metro Retail Stores is 1.7 times less risky than Converge Information. It trades about 0.04 of its potential returns per unit of risk. Converge Information Communications is currently generating about -0.02 per unit of risk. If you would invest  117.00  in Metro Retail Stores on September 12, 2024 and sell it today you would earn a total of  3.00  from holding Metro Retail Stores or generate 2.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Metro Retail Stores  vs.  Converge Information Communica

Metro Retail Stores

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Metro Retail is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Converge Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Converge Information Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Converge Information is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Metro Retail and Converge Information

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

The idea behind Metro Retail Stores and Converge Information Communications 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.