Correlation Between MTL and SC

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

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

Diversification Opportunities for MTL and SC

0.9

Correlation Coefficient

MTL  SC

Almost no diversification

The 3 months correlation between MTL and SC is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding MTL and SC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SC and MTL 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 MTL are associated (or correlated) with SC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SC has no effect on the direction of MTL i.e., MTL and SC go up and down completely randomly.

Pair Corralation between MTL and SC

Assuming the 90 days trading horizon MTL is expected to generate 1.36 times less return on investment than SC. In addition to that, MTL is 1.17 times more volatile than SC. It trades about 0.12 of its total potential returns per unit of risk. SC is currently generating about 0.19 per unit of volatility. If you would invest  0.49  in SC on August 23, 2024 and sell it today you would earn a total of  0.11  from holding SC or generate 21.83% return on investment over 90 days.

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

MTL  vs.  SC

MTL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, MTL exhibited solid returns over the last few months and may actually be approaching a breakup point.

SC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MTL and SC

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

The idea behind MTL and SC 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 CEOs Directory module to screen CEOs from public companies around the world.