Correlation Between Firefly AB and MetLife
Can any of the company-specific risk be diversified away by investing in both Firefly AB and MetLife 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 Firefly AB and MetLife into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Firefly AB and MetLife, you can compare the effects of market volatilities on Firefly AB and MetLife 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 Firefly AB with a short position of MetLife. Check out your portfolio center. Please also check ongoing floating volatility patterns of Firefly AB and MetLife.
Diversification Opportunities for Firefly AB and MetLife
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between Firefly and MetLife is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Firefly AB and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife and Firefly AB 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 Firefly AB are associated (or correlated) with MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Firefly AB i.e., Firefly AB and MetLife go up and down completely randomly.
Pair Corralation between Firefly AB and MetLife
Assuming the 90 days trading horizon Firefly AB is expected to generate 2.65 times more return on investment than MetLife. However, Firefly AB is 2.65 times more volatile than MetLife. It trades about 0.03 of its potential returns per unit of risk. MetLife is currently generating about -0.02 per unit of risk. If you would invest 18,500 in Firefly AB on January 26, 2024 and sell it today you would earn a total of 200.00 from holding Firefly AB or generate 1.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Firefly AB vs. MetLife
Performance |
| Timeline |
| Firefly AB |
| MetLife |
Firefly AB and MetLife Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Firefly AB and MetLife
The main advantage of trading using opposite Firefly AB and MetLife positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Firefly AB position performs unexpectedly, MetLife 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 MetLife will offset losses from the drop in MetLife's long position.The idea behind Firefly AB and MetLife 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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