Correlation Between Punjab National and Bank of Maharashtra

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

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

Diversification Opportunities for Punjab National and Bank of Maharashtra

0.86

Correlation Coefficient

Punjab National  Bank of Maharashtra

Very poor diversification

The 3 months correlation between Punjab and Bank is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Punjab National Bank and Bank of Maharashtra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Maharashtra and Punjab National 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 Punjab National Bank are associated (or correlated) with Bank of Maharashtra. 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 Maharashtra has no effect on the direction of Punjab National i.e., Punjab National and Bank of Maharashtra go up and down completely randomly.

Pair Corralation between Punjab National and Bank of Maharashtra

Assuming the 90 days trading horizon Punjab National Bank is expected to under-perform the Bank of Maharashtra. But the stock apears to be less risky and, when comparing its historical volatility, Punjab National Bank is 1.12 times less risky than Bank of Maharashtra. The stock trades about -0.04 of its potential returns per unit of risk. The Bank of Maharashtra is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,154  in Bank of Maharashtra on September 4, 2024 and sell it today you would lose (458.00) from holding Bank of Maharashtra or give up 7.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Punjab National Bank  vs.  Bank of Maharashtra

Punjab National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Punjab National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Punjab National is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Bank of Maharashtra

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Punjab National and Bank of Maharashtra

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

The idea behind Punjab National Bank and Bank of Maharashtra 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.