Correlation Between Top Material and Industrial Bank

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

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

Diversification Opportunities for Top Material and Industrial Bank

-0.57

Correlation Coefficient

Top Material  Industrial Bank

Excellent diversification

The 3 months correlation between Top and Industrial is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and Industrial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Bank and Top Material 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 Top Material Co are associated (or correlated) with Industrial Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Bank has no effect on the direction of Top Material i.e., Top Material and Industrial Bank go up and down completely randomly.

Pair Corralation between Top Material and Industrial Bank

Assuming the 90 days trading horizon Top Material Co is expected to under-perform the Industrial Bank. In addition to that, Top Material is 2.75 times more volatile than Industrial Bank. It trades about -0.11 of its total potential returns per unit of risk. Industrial Bank is currently generating about 0.03 per unit of volatility. If you would invest  1,424,000  in Industrial Bank on September 20, 2024 and sell it today you would earn a total of  22,000  from holding Industrial Bank or generate 1.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Top Material Co  vs.  Industrial Bank

Top Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Top Material Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Industrial Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Industrial Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Top Material and Industrial Bank

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

The idea behind Top Material Co and Industrial 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.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.