Correlation Between MTL and DENT
Can any of the company-specific risk be diversified away by investing in both MTL and DENT 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 DENT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MTL and DENT, you can compare the effects of market volatilities on MTL and DENT 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 DENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTL and DENT.
Diversification Opportunities for MTL and DENT
Almost no diversification
The 3 months correlation between MTL and DENT is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding MTL and DENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENT 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 DENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENT has no effect on the direction of MTL i.e., MTL and DENT go up and down completely randomly.
Pair Corralation between MTL and DENT
Assuming the 90 days trading horizon MTL is expected to generate 1.22 times less return on investment than DENT. In addition to that, MTL is 1.27 times more volatile than DENT. It trades about 0.25 of its total potential returns per unit of risk. DENT is currently generating about 0.39 per unit of volatility. If you would invest 0.08 in DENT on August 25, 2024 and sell it today you would earn a total of 0.04 from holding DENT or generate 46.75% 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. DENT
Performance |
| Timeline |
| MTL |
| DENT |
MTL and DENT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MTL and DENT
The main advantage of trading using opposite MTL and DENT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTL position performs unexpectedly, DENT 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 DENT will offset losses from the drop in DENT's long position.The idea behind MTL and DENT 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
Other Complementary Tools
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Money Managers Screen money managers from public funds and ETFs managed around the world |