Correlation Between Federal Bank and Punjab National

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

Diversification Opportunities for Federal Bank and Punjab National

0.15

Correlation Coefficient

Federal Bank  Punjab National

Average diversification

The 3 months correlation between Federal and Punjab is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding The Federal Bank and Punjab National Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Punjab National Bank 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 Punjab National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Punjab National Bank has no effect on the direction of Federal Bank i.e., Federal Bank and Punjab National go up and down completely randomly.

Pair Corralation between Federal Bank and Punjab National

Assuming the 90 days trading horizon The Federal Bank is expected to under-perform the Punjab National. But the stock apears to be less risky and, when comparing its historical volatility, The Federal Bank is 1.48 times less risky than Punjab National. The stock trades about -0.1 of its potential returns per unit of risk. The Punjab National Bank is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10,086  in Punjab National Bank on September 20, 2024 and sell it today you would earn a total of  217.00  from holding Punjab National Bank or generate 2.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

The Federal Bank  vs.  Punjab National Bank

Federal Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Federal Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Punjab National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Punjab National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Punjab National is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Federal Bank and Punjab National

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

The idea behind The Federal Bank and Punjab National 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.