Correlation Between Metrovacesa and Neinor Homes

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

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

Diversification Opportunities for Metrovacesa and Neinor Homes

0.41

Correlation Coefficient

Metrovacesa  Neinor Homes

Very weak diversification

The 3 months correlation between Metrovacesa and Neinor is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Metrovacesa SA and Neinor Homes SLU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neinor Homes SLU and Metrovacesa 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 Metrovacesa SA are associated (or correlated) with Neinor Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neinor Homes SLU has no effect on the direction of Metrovacesa i.e., Metrovacesa and Neinor Homes go up and down completely randomly.

Pair Corralation between Metrovacesa and Neinor Homes

Assuming the 90 days trading horizon Metrovacesa is expected to generate 1.81 times less return on investment than Neinor Homes. But when comparing it to its historical volatility, Metrovacesa SA is 1.19 times less risky than Neinor Homes. It trades about 0.12 of its potential returns per unit of risk. Neinor Homes SLU is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,352  in Neinor Homes SLU on September 12, 2024 and sell it today you would earn a total of  190.00  from holding Neinor Homes SLU or generate 14.05% return on investment over 90 days.

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

Metrovacesa SA  vs.  Neinor Homes SLU

Metrovacesa SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metrovacesa SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Metrovacesa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Neinor Homes SLU

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Neinor Homes SLU are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Neinor Homes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Metrovacesa and Neinor Homes

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

The idea behind Metrovacesa SA and Neinor Homes SLU 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.