Correlation Between TOPC and MTL

Can any of the company-specific risk be diversified away by investing in both TOPC and MTL 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 TOPC and MTL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TOPC and MTL, you can compare the effects of market volatilities on TOPC and MTL 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 TOPC with a short position of MTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of TOPC and MTL.

Diversification Opportunities for TOPC and MTL

0.0

Correlation Coefficient

TOPC  MTL

Pay attention - limited upside

The 3 months correlation between TOPC and MTL is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding TOPC and MTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTL and TOPC 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 TOPC are associated (or correlated) with MTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTL has no effect on the direction of TOPC i.e., TOPC and MTL go up and down completely randomly.

Pair Corralation between TOPC and MTL

Assuming the 90 days trading horizon TOPC is expected to generate 7.89 times more return on investment than MTL. However, TOPC is 7.89 times more volatile than MTL. It trades about 0.05 of its potential returns per unit of risk. MTL is currently generating about 0.03 per unit of risk. If you would invest  0.03  in TOPC on February 7, 2024 and sell it today you would lose (0.03) from holding TOPC or give up 94.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

TOPC  vs.  MTL

TOPC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOPC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, TOPC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MTL

Risk-Adjusted Performance

5 of 100

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.

Pair Trading with TOPC and MTL

The main advantage of trading using opposite TOPC and MTL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TOPC position performs unexpectedly, MTL 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 MTL will offset losses from the drop in MTL's long position.

The idea behind TOPC and MTL 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.