Correlation Between ATT and MetLife
Can any of the company-specific risk be diversified away by investing in both ATT 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 ATT and MetLife into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ATT Inc and MetLife, you can compare the effects of market volatilities on ATT 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 ATT with a short position of MetLife. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and MetLife.
Diversification Opportunities for ATT and MetLife
Significant diversification
The 3 months correlation between ATT and MetLife is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife and ATT 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 ATT Inc 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 ATT i.e., ATT and MetLife go up and down completely randomly.
Pair Corralation between ATT and MetLife
Taking into account the 90-day investment horizon ATT Inc is expected to under-perform the MetLife. In addition to that, ATT is 1.12 times more volatile than MetLife. It trades about -0.02 of its total potential returns per unit of risk. MetLife is currently generating about -0.02 per unit of volatility. If you would invest 7,306 in MetLife on January 26, 2024 and sell it today you would lose (34.00) from holding MetLife or give up 0.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ATT Inc vs. MetLife
Performance |
| Timeline |
| ATT Inc |
| MetLife |
ATT and MetLife Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ATT and MetLife
The main advantage of trading using opposite ATT and MetLife positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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