Correlation Between Bank of Georgia and London Stock

Can any of the company-specific risk be diversified away by investing in both Bank of Georgia and London Stock 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 London Stock 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 London Stock Exchange, you can compare the effects of market volatilities on Bank of Georgia and London Stock 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 London Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Georgia and London Stock.

Diversification Opportunities for Bank of Georgia and London Stock

0.77

Correlation Coefficient

Bank of Georgia  London Stock

Poor diversification

The 3 months correlation between Bank and London is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Georgia and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange 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 London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Bank of Georgia i.e., Bank of Georgia and London Stock go up and down completely randomly.

Pair Corralation between Bank of Georgia and London Stock

Assuming the 90 days trading horizon Bank of Georgia is expected to generate 2.59 times more return on investment than London Stock. However, Bank of Georgia is 2.59 times more volatile than London Stock Exchange. It trades about 0.08 of its potential returns per unit of risk. London Stock Exchange is currently generating about 0.12 per unit of risk. If you would invest  225,720  in Bank of Georgia on September 20, 2024 and sell it today you would earn a total of  243,780  from holding Bank of Georgia or generate 108.0% return on investment over 90 days.

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

Bank of Georgia  vs.  London Stock Exchange

Bank of Georgia

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Georgia are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bank of Georgia unveiled solid returns over the last few months and may actually be approaching a breakup point.

London Stock Exchange

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of Georgia and London Stock

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

The idea behind Bank of Georgia and London Stock Exchange 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.