Correlation Between Pan Asia and Sampath Bank

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

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

Diversification Opportunities for Pan Asia and Sampath Bank

0.95

Correlation Coefficient

Pan Asia  Sampath Bank

Almost no diversification

The 3 months correlation between Pan and Sampath is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Pan Asia Banking and Sampath Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sampath Bank PLC and Pan Asia 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 Pan Asia Banking are associated (or correlated) with Sampath Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sampath Bank PLC has no effect on the direction of Pan Asia i.e., Pan Asia and Sampath Bank go up and down completely randomly.

Pair Corralation between Pan Asia and Sampath Bank

Assuming the 90 days trading horizon Pan Asia Banking is expected to generate 1.54 times more return on investment than Sampath Bank. However, Pan Asia is 1.54 times more volatile than Sampath Bank PLC. It trades about 0.34 of its potential returns per unit of risk. Sampath Bank PLC is currently generating about 0.47 per unit of risk. If you would invest  1,880  in Pan Asia Banking on September 16, 2024 and sell it today you would earn a total of  940.00  from holding Pan Asia Banking or generate 50.0% return on investment over 90 days.

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

Pan Asia Banking  vs.  Sampath Bank PLC

Pan Asia Banking

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Asia Banking are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pan Asia sustained solid returns over the last few months and may actually be approaching a breakup point.

Sampath Bank PLC

Risk-Adjusted Performance

37 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sampath Bank PLC are ranked lower than 37 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sampath Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pan Asia and Sampath Bank

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

The idea behind Pan Asia Banking and Sampath Bank PLC 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.