Correlation Between BRP and Metro
Can any of the company-specific risk be diversified away by investing in both BRP and Metro 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 BRP and Metro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRP Inc and Metro Inc, you can compare the effects of market volatilities on BRP and Metro 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 BRP with a short position of Metro. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRP and Metro.
Diversification Opportunities for BRP and Metro
Very good diversification
The 3 months correlation between BRP and Metro is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Metro Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Inc and BRP 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 BRP Inc are associated (or correlated) with Metro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Inc has no effect on the direction of BRP i.e., BRP and Metro go up and down completely randomly.
Pair Corralation between BRP and Metro
Assuming the 90 days trading horizon BRP Inc is expected to under-perform the Metro. In addition to that, BRP is 2.54 times more volatile than Metro Inc. It trades about -0.07 of its total potential returns per unit of risk. Metro Inc is currently generating about 0.18 per unit of volatility. If you would invest 7,512 in Metro Inc on September 3, 2024 and sell it today you would earn a total of 1,611 from holding Metro Inc or generate 21.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BRP Inc vs. Metro Inc
Performance |
| Timeline |
| BRP Inc |
| Metro Inc |
BRP and Metro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BRP and Metro
The main advantage of trading using opposite BRP and Metro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP position performs unexpectedly, Metro 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 Metro will offset losses from the drop in Metro's long position.The idea behind BRP Inc and Metro Inc 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.| Metro vs. Loblaw Companies Limited | Metro vs. Saputo Inc | Metro vs. Empire Company Limited | Metro vs. Dollarama |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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