Correlation Between MBank SA and Alior Bank

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

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

Diversification Opportunities for MBank SA and Alior Bank

0.67

Correlation Coefficient

MBank SA  Alior Bank

Poor diversification

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

Pair Corralation between MBank SA and Alior Bank

Assuming the 90 days trading horizon MBank SA is expected to generate 9.14 times less return on investment than Alior Bank. But when comparing it to its historical volatility, mBank SA is 1.14 times less risky than Alior Bank. It trades about 0.01 of its potential returns per unit of risk. Alior Bank SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,331  in Alior Bank SA on September 4, 2024 and sell it today you would earn a total of  1,785  from holding Alior Bank SA or generate 24.35% return on investment over 90 days.

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

mBank SA  vs.  Alior Bank SA

mBank SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days mBank SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Alior Bank SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alior Bank SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with MBank SA and Alior Bank

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

The idea behind mBank SA and Alior Bank SA 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.