Correlation Between MTL and REDLANG

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Can any of the company-specific risk be diversified away by investing in both MTL and REDLANG 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 REDLANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MTL and REDLANG, you can compare the effects of market volatilities on MTL and REDLANG 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 REDLANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of MTL and REDLANG.

Diversification Opportunities for MTL and REDLANG

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between MTL and REDLANG is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding MTL and REDLANG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REDLANG 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 REDLANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REDLANG has no effect on the direction of MTL i.e., MTL and REDLANG go up and down completely randomly.

Pair Corralation between MTL and REDLANG

Assuming the 90 days trading horizon MTL is expected to generate 0.71 times more return on investment than REDLANG. However, MTL is 1.42 times less risky than REDLANG. It trades about -0.14 of its potential returns per unit of risk. REDLANG is currently generating about -0.13 per unit of risk. If you would invest  118.00  in MTL on November 7, 2024 and sell it today you would lose (27.00) from holding MTL or give up 22.88% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

MTL  vs.  REDLANG

 Performance 
       Timeline  
MTL 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in MTL are ranked lower than 5 (%) 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.
REDLANG 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in REDLANG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady essential indicators, REDLANG may actually be approaching a critical reversion point that can send shares even higher in March 2025.

MTL and REDLANG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with MTL and REDLANG

The main advantage of trading using opposite MTL and REDLANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTL position performs unexpectedly, REDLANG 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 REDLANG will offset losses from the drop in REDLANG's long position.
The idea behind MTL and REDLANG 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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