Correlation Between Max Financial and Federal Bank

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

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

Diversification Opportunities for Max Financial and Federal Bank

0.23

Correlation Coefficient

Max Financial  Federal Bank

Modest diversification

The 3 months correlation between Max and Federal is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Max Financial Services and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank and Max Financial 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 Max Financial Services are associated (or correlated) with Federal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Bank has no effect on the direction of Max Financial i.e., Max Financial and Federal Bank go up and down completely randomly.

Pair Corralation between Max Financial and Federal Bank

Assuming the 90 days trading horizon Max Financial Services is expected to under-perform the Federal Bank. But the stock apears to be less risky and, when comparing its historical volatility, Max Financial Services is 1.01 times less risky than Federal Bank. The stock trades about -0.01 of its potential returns per unit of risk. The The Federal Bank is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  18,787  in The Federal Bank on September 4, 2024 and sell it today you would earn a total of  2,121  from holding The Federal Bank or generate 11.29% return on investment over 90 days.

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

Max Financial Services  vs.  The Federal Bank

Max Financial Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Max Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Max Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Federal Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 8 (%) 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.

Pair Trading with Max Financial and Federal Bank

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

The idea behind Max Financial Services and The Federal 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..