Correlation Between BNK Financial and Daou Technology

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

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

Diversification Opportunities for BNK Financial and Daou Technology

-0.1

Correlation Coefficient

BNK Financial  Daou Technology

Good diversification

The 3 months correlation between BNK and Daou is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding BNK Financial Group and Daou Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daou Technology and BNK Financial 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 BNK Financial Group are associated (or correlated) with Daou Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daou Technology has no effect on the direction of BNK Financial i.e., BNK Financial and Daou Technology go up and down completely randomly.

Pair Corralation between BNK Financial and Daou Technology

Assuming the 90 days trading horizon BNK Financial Group is expected to generate 1.76 times more return on investment than Daou Technology. However, BNK Financial is 1.76 times more volatile than Daou Technology. It trades about 0.26 of its potential returns per unit of risk. Daou Technology is currently generating about -0.02 per unit of risk. If you would invest  949,000  in BNK Financial Group on September 13, 2024 and sell it today you would earn a total of  146,000  from holding BNK Financial Group or generate 15.38% return on investment over 90 days.

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

BNK Financial Group  vs.  Daou Technology

BNK Financial Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BNK Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BNK Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Daou Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daou Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Daou Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BNK Financial and Daou Technology

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

The idea behind BNK Financial Group and Daou Technology 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.