Correlation Between MT Bank and Bank of East

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

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

Diversification Opportunities for MT Bank and Bank of East

0.06

Correlation Coefficient

MT Bank  Bank of East

Significant diversification

The 3 months correlation between MTB and Bank is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding MT Bank and Bank of East in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of East and MT 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 MT Bank are associated (or correlated) with Bank of East. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of East has no effect on the direction of MT Bank i.e., MT Bank and Bank of East go up and down completely randomly.

Pair Corralation between MT Bank and Bank of East

Considering the 90-day investment horizon MT Bank is expected to generate 0.88 times more return on investment than Bank of East. However, MT Bank is 1.14 times less risky than Bank of East. It trades about 0.16 of its potential returns per unit of risk. Bank of East is currently generating about 0.0 per unit of risk. If you would invest  16,466  in MT Bank on September 12, 2024 and sell it today you would earn a total of  3,731  from holding MT Bank or generate 22.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

MT Bank  vs.  Bank of East

MT Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MT Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MT Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Bank of East

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of East has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank of East is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MT Bank and Bank of East

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

The idea behind MT Bank and Bank of East 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .