Correlation Between Target and MetLife
Can any of the company-specific risk be diversified away by investing in both Target and MetLife 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 Target and MetLife into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target and MetLife, you can compare the effects of market volatilities on Target and MetLife 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 Target with a short position of MetLife. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target and MetLife.
Diversification Opportunities for Target and MetLife
Very poor diversification
The 3 months correlation between Target and MetLife is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Target and MetLife in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife and Target 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 Target are associated (or correlated) with MetLife. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife has no effect on the direction of Target i.e., Target and MetLife go up and down completely randomly.
Pair Corralation between Target and MetLife
Considering the 90-day investment horizon Target is expected to under-perform the MetLife. In addition to that, Target is 1.18 times more volatile than MetLife. It trades about -0.18 of its total potential returns per unit of risk. MetLife is currently generating about -0.02 per unit of volatility. If you would invest 7,306 in MetLife on January 26, 2024 and sell it today you would lose (34.00) from holding MetLife or give up 0.47% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Target vs. MetLife
Performance |
Timeline |
Target |
MetLife |
Target and MetLife Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Target and MetLife
The main advantage of trading using opposite Target and MetLife positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target position performs unexpectedly, MetLife 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 MetLife will offset losses from the drop in MetLife's long position.Target vs. Costco Wholesale Corp | Target vs. BJs Wholesale Club | Target vs. Dollar Tree | Target vs. Dollar General |
MetLife vs. Lincoln National | MetLife vs. Aflac Incorporated | MetLife vs. Unum Group | MetLife vs. Manulife Financial Corp |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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