Correlation Between Metro Bank and Applied Materials
Can any of the company-specific risk be diversified away by investing in both Metro Bank and Applied Materials 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 Metro Bank and Applied Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Metro Bank PLC and Applied Materials, you can compare the effects of market volatilities on Metro Bank and Applied Materials 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 Metro Bank with a short position of Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Bank and Applied Materials.
Diversification Opportunities for Metro Bank and Applied Materials
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Metro and Applied is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Metro Bank PLC and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials and Metro Bank 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 Metro Bank PLC are associated (or correlated) with Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Metro Bank i.e., Metro Bank and Applied Materials go up and down completely randomly.
Pair Corralation between Metro Bank and Applied Materials
Assuming the 90 days trading horizon Metro Bank is expected to generate 3.83 times less return on investment than Applied Materials. But when comparing it to its historical volatility, Metro Bank PLC is 1.45 times less risky than Applied Materials. It trades about 0.06 of its potential returns per unit of risk. Applied Materials is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 16,789 in Applied Materials on November 4, 2024 and sell it today you would earn a total of 1,846 from holding Applied Materials or generate 11.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Metro Bank PLC vs. Applied Materials
Performance |
| Timeline |
| Metro Bank PLC |
| Applied Materials |
Metro Bank and Applied Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Metro Bank and Applied Materials
The main advantage of trading using opposite Metro Bank and Applied Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metro Bank position performs unexpectedly, Applied Materials 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 Applied Materials will offset losses from the drop in Applied Materials' long position.| Metro Bank vs. EJF Investments | Metro Bank vs. LPKF Laser Electronics | Metro Bank vs. The Mercantile Investment | Metro Bank vs. Dalata Hotel Group |
| Applied Materials vs. Hochschild Mining plc | Applied Materials vs. Morgan Advanced Materials | Applied Materials vs. AMG Advanced Metallurgical | Applied Materials vs. Fevertree Drinks Plc |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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