Correlation Between BF Investment and Federal Bank

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

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

Diversification Opportunities for BF Investment and Federal Bank

0.67

Correlation Coefficient

BF Investment  Federal Bank

Poor diversification

The 3 months correlation between BFINVEST and Federal is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank and BF Investment 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 BF Investment Limited are associated (or correlated) with Federal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Bank has no effect on the direction of BF Investment i.e., BF Investment and Federal Bank go up and down completely randomly.

Pair Corralation between BF Investment and Federal Bank

Assuming the 90 days trading horizon BF Investment is expected to generate 1.47 times less return on investment than Federal Bank. In addition to that, BF Investment is 1.54 times more volatile than The Federal Bank. It trades about 0.03 of its total potential returns per unit of risk. The Federal Bank is currently generating about 0.06 per unit of volatility. If you would invest  17,669  in The Federal Bank on September 27, 2024 and sell it today you would earn a total of  2,003  from holding The Federal Bank or generate 11.34% return on investment over 90 days.

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

BF Investment Limited  vs.  The Federal Bank

BF Investment Limited

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Federal Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Federal Bank is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with BF Investment and Federal Bank

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

The idea behind BF Investment Limited and The Federal 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.