Correlation Between Far Eastern and Kings Town

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

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

Diversification Opportunities for Far Eastern and Kings Town

0.56

Correlation Coefficient

Far Eastern  Kings Town

Very weak diversification

The 3 months correlation between Far and Kings is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern International and Kings Town Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kings Town Bank and Far Eastern 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 Far Eastern International are associated (or correlated) with Kings Town. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kings Town Bank has no effect on the direction of Far Eastern i.e., Far Eastern and Kings Town go up and down completely randomly.

Pair Corralation between Far Eastern and Kings Town

Assuming the 90 days trading horizon Far Eastern International is expected to generate 0.56 times more return on investment than Kings Town. However, Far Eastern International is 1.79 times less risky than Kings Town. It trades about -0.05 of its potential returns per unit of risk. Kings Town Bank is currently generating about -0.1 per unit of risk. If you would invest  1,400  in Far Eastern International on September 3, 2024 and sell it today you would lose (45.00) from holding Far Eastern International or give up 3.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Far Eastern International  vs.  Kings Town Bank

Far Eastern International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far Eastern International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far Eastern is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kings Town Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kings Town Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Far Eastern and Kings Town

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

The idea behind Far Eastern International and Kings Town Bank 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.