Correlation Between Bank of Georgia and Baltic Panamax

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

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

Diversification Opportunities for Bank of Georgia and Baltic Panamax

-0.81

Correlation Coefficient

Bank of Georgia  Baltic Panamax

Pay attention - limited upside

The 3 months correlation between Bank and Baltic is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Georgia and Baltic Panamax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baltic Panamax and Bank of Georgia 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 Bank of Georgia are associated (or correlated) with Baltic Panamax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baltic Panamax has no effect on the direction of Bank of Georgia i.e., Bank of Georgia and Baltic Panamax go up and down completely randomly.

Pair Corralation between Bank of Georgia and Baltic Panamax

Assuming the 90 days trading horizon Bank of Georgia is expected to generate 0.65 times more return on investment than Baltic Panamax. However, Bank of Georgia is 1.54 times less risky than Baltic Panamax. It trades about -0.16 of its potential returns per unit of risk. Baltic Panamax is currently generating about -0.23 per unit of risk. If you would invest  489,500  in Bank of Georgia on September 18, 2024 and sell it today you would lose (28,000) from holding Bank of Georgia or give up 5.72% of portfolio value over 90 days.

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

Bank of Georgia  vs.  Baltic Panamax

Pair Trading with Bank of Georgia and Baltic Panamax

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

The idea behind Bank of Georgia and Baltic Panamax 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.