Correlation Between National Australia and Block

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

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

Diversification Opportunities for National Australia and Block

0.74

Correlation Coefficient

National Australia  Block

Poor diversification

The 3 months correlation between National and Block is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Block Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Block Inc and National Australia 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 National Australia Bank are associated (or correlated) with Block. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Block Inc has no effect on the direction of National Australia i.e., National Australia and Block go up and down completely randomly.

Pair Corralation between National Australia and Block

Assuming the 90 days trading horizon National Australia is expected to generate 27.07 times less return on investment than Block. But when comparing it to its historical volatility, National Australia Bank is 12.11 times less risky than Block. It trades about 0.11 of its potential returns per unit of risk. Block Inc is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  9,636  in Block Inc on September 28, 2024 and sell it today you would earn a total of  4,824  from holding Block Inc or generate 50.06% return on investment over 90 days.

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

National Australia Bank  vs.  Block Inc

National Australia Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, National Australia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Block Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Block unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Australia and Block

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

The idea behind National Australia Bank and Block Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.