Correlation Between Industrial Bank and NH Investment

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

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

Diversification Opportunities for Industrial Bank and NH Investment

0.3

Correlation Coefficient

Industrial Bank  NH Investment

Weak diversification

The 3 months correlation between Industrial and 005940 is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Bank and NH Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NH Investment Securities and Industrial 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 Industrial Bank are associated (or correlated) with NH Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NH Investment Securities has no effect on the direction of Industrial Bank i.e., Industrial Bank and NH Investment go up and down completely randomly.

Pair Corralation between Industrial Bank and NH Investment

Assuming the 90 days trading horizon Industrial Bank is expected to generate 1.11 times less return on investment than NH Investment. But when comparing it to its historical volatility, Industrial Bank is 1.2 times less risky than NH Investment. It trades about 0.08 of its potential returns per unit of risk. NH Investment Securities is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  867,887  in NH Investment Securities on October 24, 2024 and sell it today you would earn a total of  552,113  from holding NH Investment Securities or generate 63.62% return on investment over 90 days.

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

Industrial Bank  vs.  NH Investment Securities

Industrial Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Industrial Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NH Investment Securities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NH Investment Securities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NH Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Industrial Bank and NH Investment

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

The idea behind Industrial Bank and NH Investment Securities 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.