Correlation Between Federal Bank and HEG

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

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

Diversification Opportunities for Federal Bank and HEG

0.22

Correlation Coefficient

Federal Bank  HEG

Modest diversification

The 3 months correlation between Federal and HEG is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Federal Bank and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited and Federal Bank 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 The Federal Bank are associated (or correlated) with HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Federal Bank i.e., Federal Bank and HEG go up and down completely randomly.

Pair Corralation between Federal Bank and HEG

Assuming the 90 days trading horizon Federal Bank is expected to generate 4.76 times less return on investment than HEG. But when comparing it to its historical volatility, The Federal Bank is 2.1 times less risky than HEG. It trades about 0.02 of its potential returns per unit of risk. HEG Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  49,066  in HEG Limited on September 27, 2024 and sell it today you would earn a total of  4,029  from holding HEG Limited or generate 8.21% return on investment over 90 days.

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

The Federal Bank  vs.  HEG Limited

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.

HEG Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Bank and HEG

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

The idea behind The Federal Bank and HEG Limited 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.