Correlation Between National Bank and MCB Bank

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

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

Diversification Opportunities for National Bank and MCB Bank

0.65

Correlation Coefficient

National Bank  MCB Bank

Poor diversification

The 3 months correlation between National and MCB is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding National Bank of and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank and National 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 National Bank of are associated (or correlated) with MCB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCB Bank has no effect on the direction of National Bank i.e., National Bank and MCB Bank go up and down completely randomly.

Pair Corralation between National Bank and MCB Bank

Assuming the 90 days trading horizon National Bank is expected to generate 1.36 times less return on investment than MCB Bank. In addition to that, National Bank is 1.37 times more volatile than MCB Bank. It trades about 0.12 of its total potential returns per unit of risk. MCB Bank is currently generating about 0.22 per unit of volatility. If you would invest  20,698  in MCB Bank on August 30, 2024 and sell it today you would earn a total of  6,083  from holding MCB Bank or generate 29.39% return on investment over 90 days.

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

National Bank of  vs.  MCB Bank

National Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

MCB Bank

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, MCB Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and MCB Bank

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

The idea behind National Bank of and MCB 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.