Correlation Between Nazara Technologies and Federal Bank

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

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

Diversification Opportunities for Nazara Technologies and Federal Bank

0.06

Correlation Coefficient

Nazara Technologies  Federal Bank

Significant diversification

The 3 months correlation between Nazara and Federal is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Nazara Technologies Limited and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank and Nazara Technologies 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 Nazara Technologies Limited 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 Nazara Technologies i.e., Nazara Technologies and Federal Bank go up and down completely randomly.

Pair Corralation between Nazara Technologies and Federal Bank

Assuming the 90 days trading horizon Nazara Technologies is expected to generate 6.7 times less return on investment than Federal Bank. In addition to that, Nazara Technologies is 1.34 times more volatile than The Federal Bank. It trades about 0.02 of its total potential returns per unit of risk. The Federal Bank is currently generating about 0.15 per unit of volatility. If you would invest  18,358  in The Federal Bank on September 12, 2024 and sell it today you would earn a total of  3,076  from holding The Federal Bank or generate 16.76% return on investment over 90 days.

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

Nazara Technologies Limited  vs.  The Federal Bank

Nazara Technologies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nazara Technologies Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nazara Technologies is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Federal Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Federal Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nazara Technologies and Federal Bank

The main advantage of trading using opposite Nazara Technologies and Federal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nazara Technologies 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 Nazara Technologies Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.